As you probably recall from today's market updates, the expectation (as the bullish consolidation/continuation triangle in the SPX developed) was for there to be an upside breakout from the triangle that would in effect serve as a head fake move (we often see head fake moves roughly 80% of the time before significant reversals or corrections) and give a downside reversal (the expected pullback some momentum.
Why? Simply go back to our
sentiment or mass psychology post from today...
"Hi Brandt,
Wanted you to know everyone on blogs and twitter is expecting a pullback here. Most bulls are waiting to buy on the pullback and most bears are short and doubling up here."
"Purely from a psychological point of view and if in fact this sentiment is reflected on the order books, then a breakout from the intraday triangle to the upside would confound longs expecting a pullback and do the same to shorts who are doubling up here as a move higher would put them at a loss as well."
The charts...
SPY uptrend with advancing volume-this is a healthy move unlike the rising prices and declining volume we have seen a majority of the time since the market moved off the 2009 lows, note when the volume started to decline, it's around the same time the divergences for a pullback started showing up. At the end of this run you can see today's symmetrical triangle which technical traders would interpret as a consolidation/up-trend continuation pattern.
Today's triangle-Obviously traders were watching it as volume (always watch for even subtle changes in volume, seeing what everyone else sees offers no edge) increased twice as price started to move out of the triangle as technical traders would expect. Also note volume pick up as those buyers started realizing losses as price moved below the breakout point and then again as price moved below 30 minutes of intraday afternoon closing trade support.
The SPY 2 min chart went leading negative at the breakout area today.
That weakness should migrate to longer term charts if it is strong enough, here it also is leading negative on the 3 min chart.
It continued to migrate to a leading negative position on the 5 min chart and right where the breakout from the triangle occurred, as suspected, there was selling in to price strength by institutional money.
Even the 15 min SPY chart is leading negative at the breakout area.
Some other averages and timeframes...
DIA 5 min has been in decline, the reason we expected a pullback to materialize, it ended the day leading negative in to the price highs.
QQQ 2 min also leading negative in to the price highs today
QQQ 5 min with a deep leading negative divergence.
IWM 3 min leading negative in to the breakout area from the SPX.
Even the IWM 15 min moved down in a leading negative divergence today.
The Non-Farm Payrolls will be a big economic data point for the US tomorrow at 8:30 a.m.
I was considering looking at adding the GLD position back, but should the NFP miss, GLD should see some strength as bad news is considered good news for those looking for the F_E_D to engage in further QE, of which gold would likely be the primary beneficiary in a scenario that is all about Dollar debasement.
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