I’ll be heading out for a few hours this afternoon & just wanted to post an updated SPY chart before I leave. Yesterday’s gap down found prices opening right on the top of the wedge pattern, which was the second consecutive confirming candlestick to the potential Island Top reversal candlestick pattern on the SPY. No surprise that the market bounced immediately from the open yesterday as that was the first backtest of the wedge pattern since the overshoot and likely the last IMO. We’re starting to see the selling increase here a bit so far and we’re pretty much back to the top of the wedge as I type.
My expectation, assuming that my primary scenario does play out, is that Thursday’s “Island” gap up in the SPY was likely a significant top. However, there’s still quite a bit of work to do on the charts, starting with prices moving impulsively back into and ultimately below the bottom of the wedge. The blue horizontal line is analogous to the 1470-1475 level on the $SPX, which is my initial downside target. Best to continue to keep things light for now and either trail up stops on existing longs in order to protect gains or book partial or full profits as the early targets are hit. More aggressive traders or those comfortable with shorting can find plenty of short setups and active short trades offering objective entries around current levels. Regardless of the “trend that just won’t end”, the risk/reward on the long side remains unfavorable at this point. Updated $SPX daily chart shown.