Price Patterns Predict-continued

About 1 pm today I showed you this chart in the "Patterns Predict" post.

So what we have above is an ascending triangle, which if you study technical analysis, you'll know that it is a bullish continuation pattern. However, we are not the only ones who have studied technical analysis, Wall Street knows exactly what this pattern is, what it represents, what buyers think and do when they see it and Wall Street has the book on all orders placed, which is why all of my orders are mental until I execute them, meaning no limit order/stops of any kind. I'm not showing them what I intend to do, but a lot of people do exactly that. A breakout from the triangle is confirmation of the pattern and I'm sure limit orders were set for the breakout above resistance.


If I'm Wall Street, this is easier then taking candy from a baby.


Here's the breakout from a later post...

Note the strong candle on the breakout and volume increasing, this is either limit orders being triggered and/or the herd all buying what they see as a continuation of the uptrend after a brief consolidation. You know from past experience, we could find examples like this every day, Wall Street has adapted to T.A., but technicians have not adapted to Wall Street. The green arrow is the breakout and I mentioned some resistance formed at the red arrow on a candle with a long upper wick, which created resistance as higher prices were knocked down on some volume.


Fast Forward....

This is the SPY 1 min chart through the close. The white box is the breakout above, the yellow box is the $122 level I mentioned as a likely head fake breakout area and the orange box is stealing candy from the baby.  Remember I said that price usually lingers around a broken support level and that went on with several unsuccessful tests of resistance from 3 p.m. until the last test around 3:45. See the big red volume after that? That's the buyers of both breakouts selling at a loss, which of course creates a snowball effect and this is why we look for head fakes or false breakouts as one of the last events to occur before a downside reversal. 


As mentioned last night, even though last night the environment was VERY bearish, 


"No victory laps yet.
The final nail in the coffin would be an upside head fake, whether the market can muster it or not, ????
It's not needed, but it happens about 85% of the time just before a reversal."

So as of the close, we have a couple of head fakes that played out on an intraday basis-the ascending wedge and the SPY $122 breakout, both did what they were meant to do. The bigger head fake and the one that I said last night and will say again tonight, is at the trading range for the week.

We can look at that range two ways...

 Tuesday's range (between SPY $118.75 and $120) in which a break of $118.75 would be the catalyst.

Or, Monday/Tuesday's range (between $118.00-$120) with a break below $118 being the catalyst. Even though we saw a head fake or two today, and as you know from last night's final post, a head fake above that trading range is really ideal; there will still be a lot of longs in the mix still that won't start seeing the kind of losses that create that snowball momentum that kicks off any decent reversal until $118 is broken-then you'll likely see  bigger version of today's late day activity and volume.

 Right now in After Hours the SPY is down to $120.38 near the top of the range, once that starts cracking up, the snowball effect can come pretty quickly. So whether it's an Ascending Triangle, a Rectangle consolidation, which I would call Mon/Tues. range, or any number of other price patterns, be careful in what you chase. Things are rarely what they seem.