Quick Updating the Initial SP500 SPY Triangle Breakout

Nov 17, 2011: 3:24 PM CST

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

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2 Comments

2 Responses to “Quick Updating the Initial SP500 SPY Triangle Breakout”

  1. Bernie Says:

    bull flag maybe

  2. Kirk Nathaniel Says:

    1,125 is the next MAJOR support level if we can successfully retrace and stay under 1,225 on the SPX