We may have just seen a successful test of the S&P head and shoulders neckline. Last Thursday the S&P slipped through the neckline but closed back slightly above it for a bullish hammer then on Friday the market squeezed with 500k SPY blocks decorating the climb several times.
Taking a look a the charts below, the first chart in the top row shows the Day 5 EMA line starting to be turned back upward by the Day 50 EMA line producing the hammer candle on Thursday and the sudden lift on Friday.
Taking a look at the second chart of the top row, we see the short term declining channel the S&P has been trading in for the past four weeks. Some of the bulls have been arguing that this is a bull flag but the bears are quick to point out that four weeks is too long a time period for a bull flag.
In the third chart of the top row, we see Thursday's hammer candle and Friday's strong candle above the neckline.
In the lower chart, we see the slowly declining 1.5 year blue channel making it very clear that the S&P has topped but just because it has topped doesn't necessarily mean the journey south is coming anytime soon. A lot depends on if the current neckline shown in red continues to hold. Looking at the previous two necklines or shelf lines we see the catastrophic falls that take place when these critical support lines give way. No one even pretends to know what is coming more than a day out anymore, it has truly become a one day market, today is what today is and good luck trying to figure out what happens tomorrow or the next day. Having said that, the momentum is with the bulls as along as we have a green close Monday. A red close on Monday would take it back to a neutral bias. A red close that finishes below the neckline on Monday would bring the bears back out in force.
Trade well my friends
Alan
