Three Push and Wedge on SP 500

Apr 17, 2009: 1:12 PM CST

A new structure has developed, which is known as the “Three Push Pattern” as price continues to ‘wedge’ itself into a rising consolidation.  Let’s see the current S&P 500 structure mid-day on the 60min chart.

Price has now rallied to the peak of the converging trendlines that are forming a possible bearish rising wedge, which places it at a “make or break” price point we all need to watch very closely.

I wanted to get this post out quickly to show the developing structure, which has now formed a “Three Push” Reversal Pattern.  Notice the three new price highs that formed on a triple-swing negative momentum divergence in the 3/10 Oscillator.

The expected play at a minimum is for a retest of the rising trendline around 850, but aggressive traders might want to hold on for a larger target should price weasel its way out of the wedge formation, which would be quite bearish.  Should price continue to rally and break outside the wedge, the stop-loss point would be clearly defined.

Do your own analysis and see what else you might be able to glean from the current price structure.

Corey Rosenbloom
Afraid to Trade.com

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39 Comments

39 Responses to “Three Push and Wedge on SP 500”

  1. mario Says:

    great call

  2. Corey Rosenbloom Says:

    Mario,

    Thanks, but we’ll see how great it is in a few hours 🙂

    Disclaimer – I’m taking the trade. Stop-loss point compared to profit target is just irresistible.

  3. Jer Says:

    I agree…I am unable to conventionally short with my broker, but I did move about 20% into short ETF’s yesterday based on this rising wedge. That said, the continuous rallying is testing my meddle (and my risk tolerance). I’m just having a lot of difficulty seeing things breaking to the upside of the wedge…but you never know.

  4. Corey Rosenbloom Says:

    Update: 875 is also resistance from February’s highs.

  5. Shorter Says:

    I’m loosing so money, so I think this rally never ended

  6. Corey Rosenbloom Says:

    Jer,

    Exactly – you never know! But the February highs at 875 offer another reason resistance could hold, combined with the wedge, Elliott pattern (for those who interpret it), momentum divergence, and to an extent, volume divergence.

    They say bulls climb a wall of worry but this has turned into a mountain!

  7. Corey Rosenbloom Says:

    Shorter,

    Tell me about it. Bulls just don’t want to give up the ghost.

  8. Anonymous Says:

    I went in with puts about the same time, based on similar indicators. I’ve got tight 10% haircut stops, and ended up down about 3-4% which surprised me, but as you say, the upside gain is too large to avoid a potential haircut if the pullback doesn’t happen.

  9. Marc Says:

    this is a situation where short traders are being tested for their money management skills. If you believe in it, you should also be able to stick to your position.
    850-870 is an area of huge resistance. Lets see how it unfolds beg of next week. Unfortunately and to my experience I have to say that the market wants to take as many stops as possible in these situations before it breaks, so I wouldnt be surprised to see higher levels continue.

    PS: fantastic website, contribution and participation.
    thanks Corey

  10. dacian Says:

    Hi Corey, it looks pretty clear there are some bearish divergences. What’s the next target you mention for the “aggressive traders”? thx

  11. Chris Says:

    Corey,

    I went back to all Cash today in my 401K .. I got 188 SPX point off March 6th entry. 27% gain … I’m not holding out for one final push up .. I hit my goal of getting back even in my 401K.

    I’m now up 2% in 401K since bear began 18 months ago. I have been in cash since SPX 1270 level.

    I think were going to near SPX 900 before major sell off happens again.

  12. blues Says:

    guys, just one more thought, BAC announce Monday morning, so this wedge could play either way. What I think might happen is a pop (up) thourgh the wedge and then back down (false break out). This look like a (in a bigger picture, daily chart) wave 5 or some sort and instead of 1,2,3,4,5 wave like Corey labeled, it should be a ABCDE (EW term) where wave E should be a blow off top. We have not seen the blow off top yet. BAC earning could be it… It could be the last blow off top (which kill all bears who is watching this bearish rising wedge) and be the end (or intermediate end) to this 1 month long rally. Another view is that we’ve finish the first leg of this bear market and we are in a larger ABC corretion (up) and this could be the end of wave ‘A’ and correction wave ‘B’ come (maybe to 740?) and then another leg “c” wave up to 1000+? We’ll see…

  13. Tony Says:

    I have always had the observation and view point that strength in the OIH is important to look at when viewing the entire SPX from a trader’s perspective.

    Today, we took out the multi-month highs going back to January with an advance this week of roughly 10% even though crude was actually down about a Dollar on the week. Even more bizarre are the nat-gas land drillers like HP and PTEN that have surged even though their rig activity is down to roughly 1/3 of their entire fleet and NG is still in the dumper ( the Baker Hughes rig count fell another 30 to 975 today, down nearly half from a year ago ).

    In any event, once the OIH starts to turn down and get weak, I will short with impunity!

  14. blues Says:

    just one more note, when I said wave ABCDE, ABCDE is part of final wave 5. If you look at the daily chart of SPY, from the March low, we are currently in wave 5 of some sort. And this wave 5 has morphed into an ABCDE wedge. Usually ABCDE wedge come with a blow off top.

  15. Andrew Stanton Says:

    The internal subdivisions of impulse waves should be labeled 1-2-3-4-5 even if they are wedge shaped. A-B-C-D-E is only used for a triangle which is a corrective structure and not a diagonal. Just remember: letters for corrections; numbers for impulse waves, even if they form part of a larger corrective structure.

  16. Corey Rosenbloom Says:

    Anon,

    If your stops are well placed (not too tight), you should be fine (we hope) as there is so much overhead resistance.

    If it breaks, then it breaks and I’m sure a lot of people will run their heads into a wall!

  17. Corey Rosenbloom Says:

    Marc,

    Thank you so much for reading and for commenting.

    Right – I had a convo with a local money manager about that topic yesterday – that the market will keep going up until bears capitulate, bleeding through all these resistance levels. When everyone (bear) throws in the towel, THAT is when the market will roll-over.

    It’s a game that’s been played for 200+ years now. Shouldn’t expect anything different! 🙂

  18. Corey Rosenbloom Says:

    Dacian,

    That’s up to the aggressive trader 🙂

    I’m a conservative trader, so I’m playing swing-to-swing.

    I’m not sure we’ll break to new lows, so I wouldn’t go there, but run a few Fibonacci grids for possible levels.

  19. Corey Rosenbloom Says:

    Blues,

    Possibly – that is what Elliott describes as a “E” fake-out where news should propel the price higher but it winds up being a hideous bull trap.

    All eyes are on financial stocks for sure – they have the power to move the market it seems.

  20. Corey Rosenbloom Says:

    Tony,

    Sounds like a plan! Confirmation/non-confirmation is so important among critical indexes.

  21. Corey Rosenbloom Says:

    Thanks Andrew,

    As strange as it may seem, this structure ‘feels’ impulse, hence my choice for numbers. Also, it’s not your standard triangle like Andrew said – it’s a unique type which is more likely a leading diagonal (though one count has it as an ending diagonal perhaps).

    The pulses up are more ‘powerful’ and the down-swings (corrections) overlap, hinting that we’re in some sort of impulse (or fractal of a correction) rather than a plain vanilla correction (simple A-B-C).

  22. David Says:

    Volume was up this week in the DOW. All is potentially not as bearish as it seems ( as hard to believe as that is ). I am not holding any weekend position.

  23. Neil Says:

    ain’t it high time for a bear party ?? ….. I’m sick and tired of this whole rally, wish its just another suckers upmove …. and i hope bulls get a good lesson for making things this much complicated in last few weeks.

    Cheers

  24. Abe Says:

    Hi Corey , great post

    what do you make of the hidden divergences forming ? do you use them at all?

    enjoy the weekend

  25. Anonymous Says:

    The EWI STU talks about bullish percent index stuff alot. Also, Friday’s update has the ‘ending diagonal’ as their top count. However, they also make a compelling argument for continued upward move.
    Here’s a chart showing BPI for NYSE: http://stockcharts.com/h-sc/ui?s=$BPNYA&p=D&yr=1&mn=0&dy=0&id=p61893755731&a=165703323

  26. Anonymous Says:

    Here’s another chart to consider: http://stockcharts.com/h-sc/ui?s=$GOLD&p=D&yr=1&mn=0&dy=0&id=p61893755731

    The wave structure of gold is pretty well defined. Makes a good case for a strong upward move in the SPX etc.

  27. Corey Rosenbloom Says:

    David,

    Good point and that’s what’s so puzzling.

    I don’t do much with fundamentals, but my contacts who do are beside themselves as economic news has deteriorated.

    Consensus is – this rally now, if it continues up, will have the technicians and the fundamentalists deeply puzzled and banging their heads against walls.

  28. Corey Rosenbloom Says:

    Neil,

    Yep – right there with you.

    I’m sure the bulls felt the same way when bears were cheering on the 7-day plunge in October!

    Every ‘bull’ has his day I guess.

  29. Corey Rosenbloom Says:

    Abe,

    I sent a chart to a fellow analyst and pointed out all these divergences, resistance, non-confirmations etc and then at the end said “This is the most bullish chart I’ve ever seen! Buy now!”

    (Un)fortunately, my sarcasm was spot-on. The market has risen since I sent that email earlier in the week.

    Sometimes you just have to laugh.

  30. Corey Rosenbloom Says:

    Anon,

    Which is it?! Ending diagonal or continued upside? I don’t read the EW work but it sounds like they’re just as puzzled as everyone else.

    Thanks for sharing the gold chart – very interesting glimpse there.

  31. Corey Rosenbloom Says:

    Anon,

    Real quick – remember that “GOLD” in StockCharts is Rangold Resources (a company with a clever ticker symbol).

    What you’re wanting is $GOLD with the index dollar sign.

  32. Anonymous Says:

    “Which is it?! Ending diagonal or continued upside? I don’t read the EW work but it sounds like they’re just as puzzled as everyone else.”

    They’ve been having a tough time as we all seem to be having for the last several weeks.
    The ending diag has now become their top count. To which they say:

    “A solid close under the lower trendline of the ending diagonal structure will signal that it’s over. On Monday, this line crosses 848 in the S&P and 7960 in the DJIA. Because an ending diagonal is a relatively rare pattern, we give it very little leeway to “work out.” In other words, the market should reverse in a sharp manner fairly soon, likely starting sometime on Monday, or something else is probably transpiring. Once the “signal” is provided that the market has reversed lower, the main stock indexes should swiftly retrace to the origin of the pattern, which in this case is 780 in the S&P and 7438 in the Dow.”

    HOWEVER, as is always the case with EWI, they give the next best alternate view. Which, in this case, is for continued upside.

    “A rally above 885 in the S&P and 8233 in the DJIA, the two levels that would eliminate the ending diagonal
    interpretation, would raise the odds for this particular wave interpretation. If this happens, market optimism
    should blossom, with major pronouncements that a new bull market is underway. We said to expect some
    “zaniness” in the most recent issue of EWFF and a third-wave rally should start to deliver. The CBOE
    Volatility Index (VIX) continues to sharply decline, which is consistent with this particular view.

    So, next week’s market action could turn out to be quite volatile, either way. Stay tuned… ”

    I recommend the EWI subscription for anyone interested in EWT with the caveat that trying to dial in to short term moves still requires a great deal of market smarts. The EWI Short Term Update can be frustrating if one is looking for specific trades. However, it is a valuable resource for seeing how to apply EWT analysis on an on-going basis.

  33. Anonymous Says:

    “Real quick – remember that “GOLD” in StockCharts is Rangold Resources (a company with a clever ticker symbol).”

    D’oh
    http://stockcharts.com/h-sc/ui?s=$GOLD&p=D&yr=1&mn=0&dy=0&id=p61893755731

  34. Anonymous Says:

    Third time is a charm (damn auto complete)
    http://stockcharts.com/h-sc/ui?s=$GOLD&p=D&yr=1&mn=0&dy=0&id=p61893755731

  35. Schweizer Says:

    Bollinger Bands on the weekly $VIX are squeezing, and price is already outside it, so something is gonna happen soon.

    Thanks for your work.

    By the way the Pi Cycle turn date, with a minor cycle 2.15 yrs long, is today.

    This model, developed in 1999 nailed model the following dates as major turning points: September 2000 (S&P and DOW market top), November 2002 (S&P and DOW market bottom) and, most recently, February 27th, 2007 (the credit bubble popped). We are now exactly 2.15 yrs later, and about to likely take another turn.

    Hmmm ….

  36. Anonymous Says:

    Of course there will be divergence on the macd. Each push in a wedge is smaller. That’s why it is a wedge.

  37. DaveB Says:

    I took some shorts Friday afternoon, I figure I can at least play for a test of the “cradle” around spx 820. Although a breakdown of the rising wedge would suggest a deeper retracement, back below 800.

  38. Corey Rosenbloom Says:

    Anon #32,

    Thanks for clarifying – sounds great!

  39. Anonymous Says:

    NP.
    Since we closed today below the 848 level we can consider that pattern complete and get bear minded again.
    Also, I think there’s a bug in the URL handing of the blog
    When I try to post the stockcharts link the $GOLD it keeps showing up as GOLD.