Competing Patterns and Levels to Watch in SP500 May 4

May 4, 2010: 9:59 AM CST

This is a special ‘breakdown edition’ of my intraday update posts, which takes a focus on three competing price patterns at the recent highs and then adds quick levels to watch for confirmation.

Let’s see the current SP500 30-min chart an hour after the open on May 4:

Be sure to read yesterday’s post “S&P 500 Devolves into Another Trading Range” to see the rectangle pattern that formed.

The first pattern is the larger rectangle, or horizontal trendlines that loosely form at the 1,210 resistance level and 1,185 support level.

We’ve officially broken under the lower support level in a potential breakout from the rectangle.  As long as price remains under 1,180, the rectangle is broken (particularly if we get a close under 1,180 today).

If buyers step in and push price back into the rectangle, then we have another bear trap situation similar to the bull trap that formed on the swing to 1,219 on April 26.  Watch closely.

The second pattern is the potential short-term head and shoulders pattern that I mentioned also in yesterday’s update (and to subscribers of the Daily Commentary).

If we do a traditional price projection calculation with 1,185 as the neckline, then that gives a vertical distance of roughly 35 points, when subtracted from the neckline at 1,185, gives us a downside target of 1,150.

The 1,150 level is also very important from a ‘pure price’ standpoint too, as this was the January 2010 high which will be expected to serve as an important support level in the future as a critical ‘line in the sand.’

Between here and 1,150, we have a few minor prior price low levels (1,175, 1,170, and 1,160).

Keep in mind that the rising daily 50 period EMA rests currently at the 1,170 level as key short-term expected support.

The other pattern is that of a potential descending triangle, which would have roughly the same downside price projection as the Head and Shoulders.

Price in breakout range expansion mode can slice through key levels quickly, so keep a close eye on your positions and intraday trades as the day progresses and don’t find yourself fighting the tape in either direction if you’re quickly put in a losing trade.

Corey Rosenbloom, CMT
Afraid to

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One Response to “Competing Patterns and Levels to Watch in SP500 May 4”

  1. SP500 Color Bar Daily Chart Update May 4 | Afraid to Blog Says:

    […] Chart Update May 4 May 4, 2010: 10:16 AM CST In a follow-up from this morning’s post “Competing Patterns and Levels to Watch in the S&P 500,” let’s pull the perspective higher than the intraday chart and look at daily levels to […]