Big Rounded Arc Playing Out on SP500 April 14

Apr 14, 2011: 11:04 AM CST

There’s a large-scale (from the perspective of the intraday chart) “Rounded Reversal” or “Price Arc” pattern playing out in the stock market right now, which is one of my favorite patterns.

Let’s take a look at the current “arc” structure and note two levels of Fibonacci Retracements to watch as the Arc continues.

I’ve been tracing out this pattern each night in the Daily Member Reports and wanted to update you on this pattern and the current levels to watch.

First, “Rounded Reversals” or “Arc Trendline” structures are among my favorite price patterns to trade, as they tend to be easy to recognize in advance (note the massive negative momentum divergences at the resistance high at 1,340) and give a clear pathway forward providing the market “rolls over” and moves on the downside of the arc as expected.

If the market ‘breaks’ the arc, then you know the pattern failed – all you have to do is draw a rounded arc trendline (can be done by hand if you print out your chart) and note whether or not price continues to bounce down from the curved trendline, or whether it continues in the down direction.

So far, the pattern has been good for a 35 to 40 point move and now faces its first critical “Will it Continue?” challenge at the 1,300 level which is a triple confluence:

  • The 38.2% Fibonacci Retracement as drawn
  • “Round Number” at 1,300
  • Prior Price ‘spike’ low from March 29

So now we play the famous intraday game:  “Will it Break or Will it Hold?” which gives intraday traders a bit of advantage over swing traders (or at least traders who watch price all day vs. those who watch end-of-day price levels).

By that, I mean intraday traders can look at the ‘internals’ or ‘guts’ of the market on the lower (including 5-min and 1-min) charts to see if there are any bullish reversal (divergences, etc) signals or bearish breadown signals (no divergences, increase in volume and momentum as price falls, etc).

That’s another story, though.

For now, watch price very closely at the 1,300 pivot level and if we see a firm breakdown there, our next “T2” (target #2, as we just hit “T1” today) Arc Pathway level is likely to be the 61.8% Fibonacci Retracement along with the March 23rd “spike” low at the 1,285 level.

A failure for buyers to hold support at 1,285 opens the door for a “Full Arc” or “Mirror Image Reversal” pattern down to 1,250.

Take a minute to browse a few other posts I’ve written about Rounded Reversals/Arcs:

Lesson in Trading Intraday Arc Trendline Breaks/Reversals

Gold Trapped Between Rounded Arc Support and Horizontal Resistance

Log-View of the Arc Trendlines on the US Market Indexes (April 2010 ahead of “Flash Crash”)

Updated Arc Patterns on the US Indexes (again, ahead of “Flash Crash”)

Sell-off in Crude Oil from Intraday Rounded Reversal (May 10, 2010)

TLT “Arcs” Down into Support

In summary, there’s two main ways to play Arc patterns on any timeframe:

1.  Play the Continuation of Price through the duration of the “Arc”

2.  Play a Reversal/Breakout through an Arc Trendline

Arcs aren’t as popular or well-known as Head and Shoulders or Flag patterns, but they certainly have their place in a trader’s growing arsenal of patterns.

Corey Rosenbloom, CMT
Afraid to Trade.com

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Corey’s new book The Complete Trading Course (Wiley Finance) is now available!

4 Comments

4 Responses to “Big Rounded Arc Playing Out on SP500 April 14”

  1. Randall Nunez Says:

    If you see, the internals are making bull divergences…$ADD, $TICK and $VOLD in 1305 level, but we are in resistence area ema20 30 min 1313….

  2. newguy Says:

    Thanks for the info, Corey. Certainly adds to the bearish case.

    This also looks like a H&S pattern, just with a big fat head and little bitty shoulders. Does that pattern fit as well? I've also seen it suggested that we're somewhere in a 3 peaks and domed house pattern, which I guess would be the most bearish pattern of all? Any thoughts?

  3. Dominick Says:

    Hello Corey.
    Which one, if any of those momentum lows forming in April would you consider a “kickoff” signal? The one on 4/12 looks like it an obvious new momentum low but I was wondering if you focused on any of the prior ones.

    Also, I suppose you just do not see all that much support in the 50% fib. range?

    I spotted the pattern also and knew something was up, but it is nice to see an educational post such as this to learn how to play it and reinforce everything I have learned from your blog and book. Thanks for the info.

    Now I just have to nail down that $tick concept.

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