Dust Settles

Today was a pretty busy day fro me with the site problems, the crazy intraday volatility, etc. However, the idea that  had in mind yesterday was that we would see a false breakout of the SPY triangle which would also correlate with some other resistance breakout zones in the other averages.

I've been looking at the charts after market and it seems like this is still very much a possibility. The issue I have is that the triangle is too obvious. Longer term the market averages don't look good, but it's just not very common to see a market break down or make any kind of move without some head fake preceding that move. Those of you who have been here awhle have seen it time and time again whether it's an intraday head fake or a longer term head fake, Wall Street makes their money by making as many people wrong as possible at any particular moment.

So here's what the DIA, SPY and IWM all have in common.

 DIA sees accumulation at the lows of Wed/Thursday, then distribution sending the DIA back down, today it posts another positive divergence at the sell-off lows today and forms a little intraday bear flag. These bear flags intraday fail all of the time so a move up just based on the bear flag makes sense. However, this all coordinates with the SPY.

 The IWM sees the exact sam behavior as described above.

And the SPY (this is a 5 min chart, but you can see the triangle trendlines), accumulation occurs at the bottom trendline of the triangle, as it approaches the top trendline, distribution (at this point the triangle is not that well developed and I wouldn't expect to see a breakout move yet). Today, just like the DIA/IWM there's a positive divergence at the lows of the day which also happens to be right at the bottom trendline of the triangle. Also another bear flag is formed. At this point, if there's going to be a false breakout (and I believe it will show itself to be false because of the very negative posture of this formation in the longer charts), then they have accumulated enough to make the trip up worthwhile. The bear flag would fail and we'd see the breakout. As I've explained before with the ADM example, there's a reason to create a false breakout, it creates the demand they need to sell short into.

So looking at these charts, I think the probability is still very much on the table. Considering the triangle is now very close to being complete, the timing is also right.

I didn't include the QQQ because as I mentioned earlier, it's off doing it's own thing, but I would think if these 3 majors moved, the Q's would probably follow.

As far as what this would mean for us, if we get the breakout and can confirm it to be a false breakout, we'd have very good positioning on a number of trades. We'd also be that much closer to getting out of this daily volatile chop that pretty much goes nowhere worthwhile and move closer to a trending position that would be worthwhile. That's my take.