Markets – Macro – Technicals

Action Replay?

Action ReplayIn August we noted a pattern replay of the January structure. Markets do like their patterns after all and when analogs can be identified they are at least well worth analyzing. The January structure has continued to play out almost to the letter and the question of course now arises what happens going forward as we are again pinging new highs.

There are three patterns I’m watching closely here, one is the daily $SPX chart as it relates to the January structure, the second is the daily $DJIA and the third is the weekly $IWM chart that I’ve been highlighting for a few weeks.

Firstly the $SPX daily chart:

SPX daily

Note that now, as back in January, we can observe a bull flag type pattern that resulted in a test of new highs right into OPEX. The March and July patterns where similar and resulted in fake new highs initially before correcting lower first. All three patterns were are similar to the one in play now as we press against upper trend line resistance.

Next week is one of the seasonally weakest weeks of the year. So the bull case for higher prices into next week seems somewhat unconvincing based on structure and seasonality.

As close as the $SPX structure seems repetitive it is the $DJIA daily chart that really hones in the point yet on a slightly different time frame, but with the same message: Some corrective activity may just be around the corner:

DJIA

But the larger pattern of concern remains the one of the weekly $IWM. This week’s bounce matches perfectly the 2011 script we’ve been observing:

$IWM

If the index continues to follow the script the next three weeks may bring about a sizable corrective move which would correlate in timing well with the end of QE by the end of October. It was the end of QE2 of course that has been credited as the proximate cause for the decline back in 2011.

Again these are just patterns and structures of the past, but the alignment in terms of time, structure and seasonality in addition to a similar upcoming event (QE ending) make these analogs at the very least very noteworthy and could possibly signal an imminent action replay for a much more colorful market.

We shall know much more by the end of next week.

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