The market did exactly what we anticipated in the last post and is now in neutral territory. There are still many factors pending for this market to pick a direction. Some of those factors are the weekly jobless claims, stimulus tapering talks, rate hikes, among others. Also on the horizon is earnings season which will be a good indicator of where we stand with our recovering economy. With all that in mind, we will take a look at where the market stands from a technical point of view and where we think it might go in the coming weeks.
As of last Friday, we saw the overall market dip and then swiftly recover in the afternoon in a relatively strong manner.
So what can we expect if the technicals continue to move uninterrupted by bad news or any other catalysts?
Looking at the daily chart (1 year 1 day) in the SPY, we can observe that the market tumbled down to a demand zone (green zone area) where buyers stepped in big time as shown by the daily volume bar, and taking the SPY up in a significant way as demonstrated in figure 1 below.
What can we expect moving forward?
Assuming that there will be no interruptions from weekly job reports, FED stimulus tapering, interest rate hikes, etc., we can expect the market to continue upwards to the upper trendline as shown in figure 2 below. The upper trendline is where the price has been reversing to the downside forming Lower Highs. The SPY has historically respected its trendlines so it is presumably safe to say that it will probably come up and test it.
What can we expect when it tests the trendline?
It is my opinion that the market will continue to respect the upper trendline and reverse back down to the demand zone. This will more than likely create a descending triangle/wedge pattern in the next couple of weeks. A descending triangle/wedge pattern is typically bullish in nature and has the price action compressing until it breaks out in either direction. You can see what the pattern might look like in figure 3 below.
Keep in mind that this is just an idea based on current indications. The market has been so resilient to any and mostly all negative news that it is impossible to predict what it will do. All we can do is react to it and trade accordingly.
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