Still Planning a Breakout or Reversal in the SP500 Wedge

Is today the day price will break violently higher in a short-squeeze… or else fall back lower within the key price levels of the rising wedge pattern in the S&P 500?

With no resolution yet, let’s update our charts and plan, plan, plan:

Before jumping into today’s analysis, be sure to check out prior updates on the range pattern planning:

“Breakout or Bull Trap?  Planning the S&P 500 Right Now (still planning)”

“What We Assumed was a Sideways Range WAS NOT Actually a Sideways Range” (important)

“Still on Breakout Watch for the S&P 500” (surprise – we’re still waiting)

First, notice the red range (wedge) pattern in price – the lower boundary is the 2,100 level while the upper high is the current 2,130 level.

The small candles at the highs – with declining volume – suggest a higher probability from classical technical analysis of a return back to the lower side of the trendline near 2,100.

With that in mind, our alternate and thus “Breakout into Short-Squeeze” Rally thesis will trigger as bulls convert bears into buyers (to cover losses) on an impulse through 2,130.

Reference February 2015 for a similar example of the “two days down into resistance” then almost 10 days in a row to the upside outcome that surprised short-sellers and thrust the market instantly to new highs.

We MUST take that into account when planning the current outcome – price could power-rally straight up again.

Here’s a zoomed-in perspective of those events:

January 2015 saw a sideways triangle/rectangle consolidation give way to a short-squeezed breakout all the way from 2,060 to 2,120 in February.

Compare that formation earlier in the year with the present consolidation and plan your trading strategies accordingly.

Be sure to check out this special video from my colleague and friend John Carter on a new strategy for screening and buying stocks poised for big breakout movements thanks to Hedge Fund activities – it’s a good idea I had not studied previously.

If we do get the upside breakout, John may very well be on to something here!

Corey Rosenbloom, CMT
Afraid to Trade.com

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

Corey’s book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).