How About a Trip Down to 847?

The SPX has a potential head-and-shoulders pattern on its intra-day chart (click to enlarge):

spx-4-30-09

Blue line L1 measures from the head to the neckline, and blue line L2 projects that same length down to the price target at purple point “A” near 847. Following the purple line to the left from “A”, we arrive at purple point “B”, which just so happens to be the panic low from Tuesday morning – the den of fearless dip-buyers.

So, if the market wants to dive tomorrow, I will be looking for 847. Don’t forget that with an H&S pattern, you want to see a surge in volume as the neckline is penetrated. Until that event, it is not an H&S, but just a bunch of squiggles. (You can look at SPY for the volume). Also, with the neckline so close at 868, it is possible for the market to gap right under it at the open.

IWM Ascending Triangle

The IWM has a bullish ascending triangle on its daily chart (click to enlarge):

iwm-triangle

The red lines outline the triangle. The lower red line extends farther back, so it has a good deal of importance beyond the triangle. The blue line marked “L1” gives the height of the triangle, and a breakout would project the same length shown by line “L2”.

From L2, follow the purple line to the left and you will see that a breakout would measure to the January peak marked by the purple arrow. So, if the IWM can break above the 48.25 area, it may have another 8%, or so, to run.

The IWM has outperformed SPY and QQQQ during this rally, and it represents 2,000 small-cap stocks, so it is important to watch. Also, even though many bears are calling this “The Crap Rally”, the fact that small-caps are leading doesn’t really tell us anything.

QQQQ has a similar pattern to the IWM, though it may be degrading. And since the XLF topped back on the 17th, and SPY is still conforming to its bearish rounding-top pattern, I wouldn’t be surprised to see the IWM “round over” also. Nevertheless, if it breaks out, you definitely don’t want to be in the way.