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MAY 13, 2011 · 2:09 PM | EDIT

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The Micro and Macro View

In the micro view, this is what the market has been doing with these triangles before reversing, so this is what I’ve been looking for, a run up above the upper trendline at the white arrow, then the drop at the red arrow, it’s all part of the “snowball effect” I’v described.

Here’s the example I mentioned yesterday in ADM, we have the triangle which is very obvious, the 2 day break above the triangle and then the snowball effect as it falls fast and hard.

From this 15 min chart, it appears the SPY wants to do this, looking at the last time the SPY challenged the lower trendline we saw an accumulation period that ran prices up, but our triangle was not as well defined then and it certainly wouldn’t be as easy then as it is now with a much narrower apex of the triangle (less distance to travel to create a false breakout). However, tme is growing short as this triangle will most likely produce a very directional move shortly as the apex is nearly complete (similar to a Bollinger Band Squeeze).

That’s the Micro view of events. Here’s the bigger picture.

This hourly chart is showing a leading negative divergence in the SPY triangle, this is pretty ugly and puts the odds of a sharp breakdown out of the triangle pretty high. As you can see in the past, 3C on this chart has been reliable with accumulation zones sending prices higher and distribution zones sending them lower. There’s another accumulation zone not marked on the chart right before prices moved up into the triangle, you may be able to see the divergence. The leading negative divergence on a 60 min chart is about as negative as you get.

You can also see the apex of the triangle nearly closed so events should unfold pretty quickly.