as a continuation to the “dashed hopes” post below, here are a couple of text-book bull traps that played out in conjunction with those failed 3 minute index chart continuation patterns that i posted yesterday. as i often state, using multiple time frames is essential to being a successful trader IMO. it can be easy to get lost in the intraday charts (1 min, 5 min, 15 min, etc.. time frames) and this is a case where one could have made a very bullish case technically yesterday afternoon… but shouldn’t have.
first, let’s start with these 60 minute SPY and QQQ charts below. i have some channels drawn that i have actually been watching for days but have not posted here as to avoid presenting a confusing/conflicting take on the markets. i’d image that these channels were being widely tracked by traders; bulls waiting for an upside breakout as a buy signal to go long and bears watching for a breakout to cover or hedge their shorts.
the fact that the SPY broke out of that channel yesterday morning, made a small pullback to re-test and then ripped higher was further evidence that those channels were being watched by traders as a key technical level. add to that the fact that after making that impulsive breakout the SPY went on to form that text-book bullish pennant consolidation pattern (shown on the 3 minute charts yesterday afternoon), which was very typical behavior for a stock or index to form a consolidation pattern to digest a recent big move up while it builds the energy for the next thrust higher. those two actions, taken together, would appear very bullish to a trader who already had a bullish bias and this is a great example of what happens when the market does the opposite of what the majority expects it to do. this also helps give me a “read” into the true underlying dynamic of the market and what i tells me is that this continues to be a market in distribution, vs. accumulation, i.e.- more sellers than buyers. the supply and demand dynamics can and will change at some point but as long as i see the rips being sold into, bearish technical patterns playing out very well and bullish patterns fail to trigger or fall well short of their technical projection, i will continue to view the charts with an overall bearish bias.
