Inside the 60 minute SPY V-Bottom Reversal Pattern
It seems like all eyes have been focused on the S&P 500 and what it’s been up to over the last few weeks. Let’s step inside the recent V-Bottom Reversal Formation that set-up and track the move on the 60 minute chart starting with the push to new lows and ending with mid-day April 2nd’s push to new highs.
Click for larger image
Price spent most of February trending down until March 6th when price found a meaningful bottom, formed a sort of “V” Pattern (not quite a “V-Spike” pattern, but a “V” nonetheless) and has now created a near mirror image of the prior decline, rallying through most of March.
The V-Pattern formed on a clear positive momentum divergence (not all divergences lead to trend reversals, but almost all trend reversals are preceded by some type of divergence).
I’m also showing a volume divergence (as well as a slight negative momentum divergence) that set-up going into April, but today’s bullish action over-rules them both. The “Mark-to-Market” accounting rules were changed to be more favorable to Financial Companies which – among other news – sent buyers rushing back into the market.
If you look very closely, a Cradle Sell was mere points away from forming yesterday but it didn’t officially form (price managed to dip beneath the 20 and 50 EMAs but didn’t hold long enough to force a crossover) so that was an interesting structural development as well. That downswing served as a Bear Trap, and part of today’s push up likely is resulting from Bears getting short into what appeared to be a valid reversal pattern down.
To add more interesting developments to the structure, we formed a New Momentum Low at the end of March and then turned right around to form a New Momentum High today. The market currently is a little more difficult than normal to trade.
Keep watching the structure as it develops and watch your risk.
Corey Rosenbloom
Afraid to Trade.com
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Travel to the LA Trader’s Expo in June to hear Corey speak on “Idealized Trades for Intraday Traders”
Corey:speaking of volume divergences, what do you think of this resistance line? Am I seeing too much or is it a valid one?
http://twitpic.com/2q7v8
Cordura,
I think you’re right on – that’s a line I’m watching as well and expecting it to hold but who knows now – it seems fighting the bulls in this rally has proven to be a losing venture.
It’s valid because it has been touched (now) at least three times.
Hey Corey,
Was wondering if you’re aware of the “Slingshot” setup that Linda Raschke has talked about? I mention it b/c it’s apparent in this SPY chart and it has become more evident to me in my trading.
Long trades = higher low in price corresponding to a lower low in momentum.
http://toddstrade.blogspot.com/2009/03/range-day.html