Third Time the Charm? SPX and the Daily Rally Pattern

Sep 2, 2010: 5:37 PM CST

The markets for some reason are much more sensitive to pattern repetition lately – so that begs the question:

“Will the current rally pattern continue?”

Oh – first, let’s define the rally pattern and then see what the current ‘pattern completion’ and target is.

Officially, we’re in a sideways trading range that began in June (or late May).

So far, the daily ‘rally’ pattern is the following:

1.  Bounce off 1,040 (or 1,010) after reversal candles
2.  BIG rally day then small up day
3.  Continuation up to 1,130

This was the case with the bounce off the respective June and July low – notice the candles and then pay particular attention to the BIG rally day bar followed by a small rally day.

In the case on June, we rallied almost non-stop to 1,130.

In the case of July, we had some trouble initially at 1,100 – resistance – and then found support to rally back to 1,130.

And in September, we have the pattern appearing to re-form and we’re halfway through the current pattern.

Bounce off 1,040 from reversal candles?  Check.
Big one day rally followed by smaller rally next day?  Check
Rally up to 1,130?  To be determined

Here’s the daily structure chart:

I’ve been showing this chart in the Daily Idealized Trades reports to subscribers and argued very strongly for a bounce off 1,040 – that materialized as expected the last two days.

That’s because we had short-term bullish trendline breaks, positive momentum divergences, and positive triple market internal divergences… and of course the support pattern I’ve been defining off 1,040.

And the rally materialized to a strong degree.

And now … resistance from a ’round number’ standpoint exists at 1,100 and if we clear that, we can expect to see 1,130.

But of course, the over-ruling variable is tomorrow Morning’s Jobs Report.

A better than expected report will almost certainly send the market rocketing through resistance and on to its “pattern projection” target of 1,130.

A worse than expected report may be powerful enough to break this pattern and eliminate the pattern completely – plunging the market back to 1,040.

And an ‘in-line expectation’ may keep us within the parameters of the pattern and on our way back to 1,130.

Keep an eye on these levels, the pattern, and how the market responds to the Jobs Report – slated one hour ahead of the Open.

Corey Rosenbloom, CMT
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2 Responses to “Third Time the Charm? SPX and the Daily Rally Pattern”

  1. amehrich Says:

    Just to make things a little more interesting you also have a downward trend line (April highs to August highs) sitting between todays close and 1130. Should make for an interesting show tomorrow.

  2. amehrich Says:

    It appears the S&P closed just below that downtrend line. After a 64 point move up in just four days the S&P is certainly well positioned for some profit taking early next week.