Let’s take a quick snapshot update of today’s breakdown from the Symmetrical Triangle Pattern we’ve all been watching in the S&P 500 (and SPY).

Today hit the initial downside target, but what’s the bigger picture saying?

Let’s start with the Hourly Breakout:

Take a look at our prior updates this week from the S&P 500 Symmetrical Triangle Pattern for pure-price charts ahead of the breakdown.

The initial downside target was the retest of the key 1,220 or $122 level which occurred on today’s sharp breakout/sell-off under the 1,240 ($124) critical support level.

What occurred was the expected move – that of a ‘feedback loop’ of liquidation from the bulls and short-selling from the bears that took price to the next lower “Decision Point” at $122.

That’s where we find price at the moment – challenging a critical “Make or Break” support level as buyers and sellers push for dominance (and we trade the resolution of the ‘battle’).

Notice the sharp decline in volume during each of the two rally phases – that’s a great example of how volume can lead signals in price (from divergences).

With the initial intraday support target hit, let’s see the Daily Chart to see what support levels still exist:

What a difference one day can make – we closed yesterday atop the key rising Trendline support and 20d EMA at 1,240.

In just a few hours today, the index broke not only under the triangle trendline, but the 50d EMA at 1,224 as well – a powerful development on the chart that warrants our attention.

A slight push lower breaks the market under the “Round Number” support at 1,200 which would be expected to trigger another wave of selling via a Feedback Loop of Bullish liquidation and Bearish positioning (getting short).

Of course, the bulls have a chance to ‘fight it out’ here, so traders should be prepared to act accordingly on what happens at these levels.

We’re specifically monitoring whether Bulls regain the chart and force another mean “Bear Trap” like October 4th… or else Bulls give up, resulting in a potential move back towards 1,120’s support.

Keep on your toes in this rapidly developing situation.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

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

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So far, the Symmetrical Triangle Pattern has held firm, containing this week’s moves into the upper and lower compressing trendlines.

Let’s update the original “SPY/S&P 500 Symmetrical Triangle” post from earlier in the week with a mid-week perspective:

The dominant trendlines have compressed to the 1,260 and 1,240 area (plus or minus a few index points) which also happens to be the compression zone between the very important 200 day Simple Moving Average (a firm reference) and the rising 20 day EMA (1,243) along with the rising 50d EMA (1,225).

The main idea is that traders expect price to breakthrough one of these boundaries and produce a “feedback loop” or breakout impulse move in either direction.

An upward expansion break initially targets 1,300, then on a firm breakthrough of 1,300, we enter “Open Air” that could continue the breakout towards 1,360 or 1,370.

On the downside, an initial break targets 1,220 then 1,200, but if the 1,220 confluence support fails which continues under 1,200, we would expect a similar impulse down towards the 1,120 support line.

As a trader, it’s best to see triangles as neutral patterns instead of injecting a directional bias into the mix – buyers and sellers are battling for dominance, and a consolidation/compression pattern suggests equality or equilibrium in the battle.

The breakout/impulse move is a sign one side became dominant over the other, leading to “Popped Stops” and liquidation, creating the Feedback Loop.

Here’s a peek into the Hourly Chart with indicators:

The “Midpoint Value Line” is 1,250 and we can clearly see the Blue Compression Trendlines coming in at 1,240 and 1,260.

We often see breakouts of Symmetrical Triangles from 2/3 to 3/4 of the distance from the height (where the Triangle begins) to the Apex (where the trendlines converge) – that’s 66% to 75% of the way towards the Apex.

Let’s see that Apex on a Pure Price chart:

Extending the Pattern forward, we see a proposed trendline convergence – Triangle Apex – at the very end of November (this varies depending on how strictly you draw the trendlines).

That would place us currently in the “Potential Breakout Zone.”

I’ve seen triangles continue on and breakout all the way to the Apex, and of course I’ve seen triangles behave as classical analysis/research has suggested.

The main idea is to keep watching this pattern as it develops and be ready to act/react should any breakout develop – keeping in mind that an initial breakout may result in a trap, which would suggest a harder break in the opposite direction.

Either way, this is the pattern a lot of traders are watching, so be on guard for the expected move… or the unexpected move (which, unfortunately, tends to happen when a pattern becomes too obvious and too mainstream).

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

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

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Oil put in a stellar upside performance from October to present, and now faces yet another “Resistance Challenge” (it’s passed the others so far) into the $100 price resistance confluence.

Let’s view three timeframes of Crude Oil to see what to look for and what might come of the “Battle for $100.”

The main idea at the moment is that Crude Oil prices have rallied steadily into the $100 triple resistance confluence.

It’s triple daily chart resistance due to the July swing high, 61.8% Fibonacci Retracement as drawn, and the simple “Round Number” resistance at $100.

Does that mean price is guaranteed to turn down here?  No – just look at how price initially stalled in late October and broke through in early November above the “Double Confluence” (200d SMA and 50% Fibonacci) at the $95 level.

We also see an initial breakthrough in late October of the $90 level – 38.2% Fibonacci and September swing high.

Inflection points like these tend to be good spots to initiate trades – bears who believe resistance will hold can enter and place a tight stop above the confluence and play for a larger downside target than the small stop.

Of course, bulls/buyers can enter a Breakout Trade as price breaks then holds above a key visual resistance area.

Breaks above resistance tend to trigger “Popped Stops” wherein the short-sellers are forced to buy-back their positions to cover, which joins with the eager breakout buyers to create a “Feedback Loop” (impulse move).

A similar situation exists now at $100 – price is either going to retrace down/stall here, or shatter higher through it, pushing through the “Open Air” particularly if price can clear $105 soon.

Thus, a clean upside break suggests price eventually could retest the $115 region.

A downside reaction here suggests otherwise (the initial target would simply be the $95 confluence, then under $95 targets the $90 confluence).

Let’s take a quick step inside the Daily Price Action to see two timeframes of intraday charting:

I wanted to show the Hourly Chart to give a broader perspective of the last few months in Crude Oil, complete with Divergences and key price levels (mainly $90).

You can see how price formed a lengthy divergence and reversal initially into $90 in September, then reacted lower from the $90 target in early October which gave-way to the final breakthrough in late October.

We’re seeing a similar lengthy negative divergence into the $100 area, which is seen best on the 15-min chart:

The 15-min chart shows us the strong rally from $90 to $99 in November, and zooms in on the divergence in momentum.

It also highlights a short-term support shelf to watch at $97 which recently became a polarity level.

The odds for reversal increase if oil trades under $97, though while price hovers above $97, price is in that key “Make or Break” neutrality zone between the $100 resistance (bullish bias above) and $97 support (short-term bearish below).

The resolution should be interesting so at least monitor this situation if you’re not trading Oil at the moment.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

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

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It makes sense that the broader market would pause to catch its breath after such a stellar October performance.

That’s what’s happening at the moment as the S&P 500 consolidates/pauses in a sideways/symmetrical triangle price pattern.

Let’s review the pattern and the current trendline reference areas and develop a game-plan of what to do with a future breakout.

First, the pure S&P 500 Triangle Pattern:

We’ll add more indicators to the mix later, though it’s often helpful to start any form of chart-analysis with a “pure price” chart free from clutter.

In this case, we see the 30-min intraday S&P 500 chart with short-term compressing (converging) trendlines that form a Symmetrical Triangle Price Pattern.

The current Red Upper Resistance Line comes in around 1,265/1,270 while the rising Green Support Line trades around 1,230/1,235.

That makes the “Midpoint” level 1,250 (the Center of the developing pattern).

The simple play would be to trade short-term within the boundaries of this pattern intraday and then prepare to trade the initial breakout – a down-break quickly targets 1,215/1,220 while an up-break  targets 1,290.

Triangle Patterns tend to produce breakout/impulse moves that travel beyond the initial targets of the prior imediate swing highs and lows, and for that, we’ll need to turn to the higher frames.

But first, let’s take a look at the SPY ETF and throw volume insights into the mix:

I added a yellow horizontal “Fair Value” or “Midpoint Value Area” mark at $125.50 which is roughly the 1,250 area in the S&P 500.  Otherwise, the breakout area is $127 and $123/$123.50 respectively.

Volume has a tendency to decline in the context of a consolidation pattern and that’s what we’re seeing at the moment.

Specifically, we’re seeing a form of distribution volume wherein volume steadily declines as price rises higher and then increases as price declines.

Distributive Volume suggests a downside resolution, but we merely need to look back to October’s non-stop rally to see how price defied the odds and continued its upward march to where we are now.

With the levels and volume insights above us, let’s now jump to the Daily Chart for more chart-facts:

The Daily Chart not only puts the current Symmetrical Triangle in context, but it also gives us extra reference levels that help us understand WHY price is consolidating at the moment.

Above price is the confluence resistance from 1,275 (200d SMA) and 1,295 (a price polarity level and October swing high).

To over-simplify, you can refer to 1,300 as the key major resistance level that – if broken – should lead to a “Popped Stops” breakaway move higher towards 1,350/1,375.

On the downside, we have rising support from a longer green support trendline as drawn as well as the rising 20 and 50 day EMAs (1,240 and 1,220 respectively).

Just as you can oversimplify 1,300 on the upside, we can oversimplify 1,220 or even 1,200 as the critical downside support confluence which – if broken – should produce an impulse breakdown back towards 1,120/1,100.

We can also see that Volume is suggestive of a downside break, but we make money trading PRICE (what actually happens) as opposed to indicators (which clue us in to what is SUPPOSED to happen).

Keep these dominant short-term reference levels in view as we trade the week(s) ahead.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

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

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The Las Vegas Trader’s Expo is quickly approaching and now is the time to plan ahead!

The Expo will take place November 16th to 19th at the Bally’s/Paris Las Vegas and it will be a great time to round out the year, network with colleagues/fellow traders, and learn a wide variety of new trading strategies you can take with you  back home.

I’ll be giving two presentations at the Expo:

Intraday Trading Tips:  How to Spot and Profit from the Elusive Trend Day

The Where, When, and How of Trading Trend Reversals

In addition, dozens upon dozens of trader educators will give presentations ranging from different styles of trading – swing trading, position trading, day trading – on any market you can imagine – futures, FOREX, stocks, options, ETFs.

The Expos are always a great place to sample strategies, methods, or markets you might not have considered, or of course to dig a little deeper in the material in your favorite market.

Traders also have the opportunity to attend four-hour, intensive sessions that allow you to go beyond the basics into some of the advanced techniques on trading strategies, risk management, trader tax information, and trade efficiency.

The Las Vegas Expo will feature two unique opportunities to learn from trading titans:

Four Hours of Real-Time Trading with Two Legends:  Tom DeMark and Larry Williams

The Ultimate One-Day Trading Workshop:  The Best of the Best from 31 Years of Trading – Linda Bradford Raschke

These are just two of the many back-to-back presentations during the Expo – be sure to visit the entire schedule for the full roster of workshop and intensive sessions available to you as an attendee.

Also, if you can’t make the trip to Las Vegas, some of the presentations will be available in real-time and via webinar archive.

I always enjoy the Expos and if you haven’t attended in the past, this Expo would be a great opportunity to deepen your education, meet fellow traders like yourself (they have plenty of social/networking opportunities), and try out some of the latest tools and gadgets available to the trading community.

Thank you to the Traders Expo staff for putting this all together and I hope to see you there!

Corey Rosenbloom, CMT

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