The Dual Three Push Reversal Patterns in the SPY

Oct 12, 2009: 4:48 PM CST

I can’t remember seeing this particular fractal pattern forming a “Dual” Three Push reversal pattern, so let’s take a look at the SPY (S&P 500 ETF) to see what the daily and 30min charts are showing a Dual (Fractal) “Three Push” reversal pattern… and what to expect.

First, the S&P 500 (SPY ETF) Daily Chart:

First, what is a “Three Push Reversal” Pattern? I describe it with a few examples at our free educational section.

Mainly, it is an ‘exhaustion’ pattern that is often found at major inflection points in a market.  It consists of three roughly symmetrical higher highs that are often accompanied with three lower peaks in a momentum oscillator (like the 3/10 Oscillator or Rate of Change).  It is also called a “Triple Swing” Negative Momentum Divergence.

The daily chart may be compared to a “Four Swing” or “Four Push” pattern, given that four recent swing highs have formed, though the 3/10 Oscillator is highlighting three swings as I have labeled them.

The fact that price formed a doji candle at the upper Bollinger Band adds to the odds of a price reversal from these levels.

Take a close look at volume and how almost every up day (rally day) in October was met with lower volume than the day before – a powerful non-confirmation.

Taken independently, this would be one of the lowest risk (stop above $108.50 or $109.00), highest probability (trend reversal) set-ups to take… but before you get too excited, remember that the buyers/bulls have crushed every single sell signal so far (as noted in my prior post) beginning with the July “busted” head and shoulders pattern.

Now to the 30min internal chart:

What piques my interest even more is that we’re seeing the exact same “Three Push” fractal (‘baby’) pattern on the most recent rally in October on the 30min (and 60min) intraday charts.

That fascinates me and draws my attention.  In essence, we have two major potential reversal patterns forming on two different timeframes (daily and intraday)… which could enhance the odds of a reversal.

Of course, it would mean a double pattern  failure if price continued higher.  That’s what trading is about – finding high-probability, low-risk set-ups and opportunities… particularly if you can find confluence across non-correlated trading strategies as mentioned here:

Daily 3-Push Pattern
30 minute 3-Push Pattern
Negative Momentum Divergences
Negative Volume Divergences
Upper Bollinger Band on both the Daily and 30 min frame
Dojis/Reversal Candles at the highs
Price testing prior “2009 highs” which could serve as resistance

Of course, none of this is guaranteed to produce a price reversal as expected, and bulls/buyers have shown a willingness to destroy and and all technical (chart) sell signals.

However, until we see new price highs during this particular snapshot in time… the sell signal is shaping up to be quite explosive and at least something to keep your eye on if you’re unaware of these confluences.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

12 Comments

12 Responses to “The Dual Three Push Reversal Patterns in the SPY”

  1. Greg Says:

    Thanks man. I have a bunch of bear put spreads. Was planning to hold come hell or high water. But seeing your post makes it easier.

  2. Corey Rosenbloom, CMT Says:

    Put spreads are a less stressful way to play this set-up I think.

    Market could – and very will might – keep inching its way higher (in part driven higher via short-covering/short squeezes at the highs) but with puts – and especially spreads – you know your exact risk and reward (max loss/max gain) in advance of the position… as long as you don't try to tweak it mid-trade.

  3. Ken Says:

    I bought a very small position yesterday towards the close to try to take an early position at the short term top of the market in the ultra-short SMN – looked like it was a bit stronger than other ultra-shorts out there.

    Today's action was truly interesting – I can't wait to see what develops, great analysis as always Corey.

  4. Greg Says:

    True, but I bought too early, and maybe to heavily. I'm holding 160
    58/54 Jan IWM Bear Put spreads. My average price is about $1.40
    (ouch). It's about 4% of my account, so not the end of the world. I
    actually bought back 20 of the 54's I sold last friday thinking the
    top was in. I guess we'll see. I did the Januaries to give myself
    more time for the trade to work out.

  5. GW Says:

    It's not some nebulous group of generic “buyers” who are crushing the bears at every turn, it's the Government Sachs automatic trading systems that are doing it. The way they hit the VWAPs with astonishing precision is quite telling, don't you think?

  6. Red Dragon Leo Says:

    Corey,

    The thing that will save the Bears is heavy volume. We may have that this Wednesday, Thursday, and Friday. Most option expiration weeks seem to dry up after Wednesday, but I think this one will be different. Big names are coming out with earnings and that will most likely create a lot of volatility.

    Since the market has been rising on light volume, and going down on heavy volume, I'm inclined to believe that any heavy volume will be selling, not buying. However, I don't expect much tomorrow… probably another flat day, while waiting for the big earnings to start coming out.

    It's funny, as I mention on my weekend post (my blog is red and black too… cool colors) that 107.65 (spy) was the line in the sand… and it closed today at 107.68. Technicals are sometimes scary when they are that accurate.

    Red

    P.S. Been reading for awhile but this is my first post. Just set up a disqus account a month ago.

  7. Corey Rosenbloom, CMT Says:

    Thanks Ken!

    That's also a good idea – start scaling in starting with a small position and then add when and if price starts to trail lower. Lowers risk that way.

  8. Corey Rosenbloom, CMT Says:

    Red,

    Glad to have you! Nice site you have as well – love the images and the awesome logo.

    I agree 100% – the spikes are clearly on the down-days but even that hasn't stopped the buyers (so far).

    As for earnings, almost all companies have “beat expectation” by cutting costs and laying off workers (unemployment continues to rise). It's now time to see top-line beat expectations (revenue/sales).

    In the short-term, earnings might be good but if it comes at the expense of higher unemployment, then while it might 'help' a company, it will hurt the economy in the long run.

    Definitely recommend keeping a close eye on what is said/reported and not just on the magic “did it beat or not!?” earnings number.

  9. Red Dragon Leo Says:

    Yeah Corey,

    I'd say it's a given that they will beat estimates, but what they really say is what the market really wants to hear. Cutting costs through downsizing can only last for a little while. At some point you will have to actually make a profit.

    It's almost like burning your furniture in your house to stay warm because you can't afford the heating bill. You will eventually run out of things to burn.

    Red

    P.S. That's for checking out my site. I just put it up a month ago. I like playing with Photoshop to create cool pictures, and it's a place to post my thoughts on too. Everyone else posts charts, so I thought I'd be different and focus on less technical and more emotional posts.

  10. pipercolt Says:

    Except if this 3 push is a true elliott wave we would expect that 3rd wave to be a little higher from here probably taking us to 1100 and then we'd have good symmetry.

  11. cholesterin Says:

    Here you have explained very nicely. Graph is very helpful to understand very easily. I am proud of you because calling attention to a very important issue. It is very informative. You did a nice job. Thank you very much for giving a nice article to us.

  12. cholesterin Says:

    Here you have explained very nicely. Graph is very helpful to understand very easily. I am proud of you because calling attention to a very important issue. It is very informative. You did a nice job. Thank you very much for giving a nice article to us.