Here is the triangle on the SPY 15-minute chart that George has been talking about (click to enlarge):

The blue line is the 36-SMA and the green line is the 9-SMA. Prices flopped in the post-market right after the bell, so maybe the market is planning another trip down to the lower line. That’s a bearish factor. But prices also briefly pierced the upper line (red arrow) just before the close before falling back below. The fact that they were able to pierce the line at all is a bullish factor. That’s exactly what happened in our last triangle on April 8th just before it broke out to the upside. Here is the chart that I posted back then:

At the black “3″, you can see prices pushing above the upper line before falling back below, though that was a much stronger push than the one SPY made on Thursday. Here is how the chart developed:

SPY gapped up the next morning, dropped back into the gap, didn’t quite fill it, and rallied the rest of the day. So that is a potential model for today. Another model is a drop back to test the lower line again, and then rally up and out. And the bearish resolution might look like George’s Triangle from the October high:

Note the false breakdown, another run up to the upper line, and then the ultimate breakdown. So, be ready for some treacherous swings, and watch the 9/36/15 crosses. The breakout should project to about the height of the triangle, and the current one is about 25 SPX points. So, that will be an excellent move if you are on the right side of it, and rather painful if you are not.

Also, look at the purple line on the first chart. That’s what I call a “turbo line” since it is steeper than the lower, red triangle line. On another downswing, it may provide support, and if it does, then that would be a bullish factor since it would indicate that dip-buyers were very eager to come in.

And look at the big blue “X” on the third chart. The apex of a triangle becomes an important level in itself, and you will often see prices return to test that level.

So, in summary, we should see a breakout today, whether up or down, it should eventually extend to 25 SPX points, and a few days later, we might see a retracement that approaches the apex level, which I have at 1205. Easy as pie, right?

My blind guess would be a bullish resolution. If you look at the fourth chart, you see the 36-SMA (blue line) drifting relentlessly downward throughout the entire triangle. We don’t have that this time.

So far, my “portentous” call for yesterday morning’s trading is looking good as the SPX refused to follow the NASDAQ-100 (a.k.a. “Steve Jobs”) to a new a high. SPY is poised to make a large gap down and will be testing its Tuesday morning gap right at the open.

Unlike the NDX futures (NQ), which rocketed to a new high on Apple’s earnings overnight, the SPX futures (ES) were not able to make a new high of their own. The rally high for the ES is 1210.50 from Thursday morning and they were only able to tag 1209.50 overnight. So, today’s open may be portentous.

The market didn’t make the falling-wedge pattern that I said to keep an eye out for yesterday. But SPY did make another reversal pattern: a double bottom, which you can see on the intra-day chart. However, the SPX was unable to get above the left-shoulder level of my H&S chart at 1199. It will try again at the open.

Shocking Cultural Decline

Here’s historian Paul Johnson on the British bankers of 50 years ago:

“At the local level the men who ran the banks in the high street were popular and trusted and were regularly conscripted onto every committee that mattered. In the City of London the top people formed a regulatory agency in themselves and dealt swiftly and severely with anyone who fell short of the highest standards of integrity.”

And on Friday, we were treated to the spectacle of Jim Cramer on CNBC boasting about how the feds were not able to make anything stick to Bear Stearns and Lehman Brothers, and won’t be able to make anything stick to Goldman Sachs either. Quite a contrast, is it not?

Don’t Make Me Laugh
Zero Edge offered me access to the “primary” withholding tax data. Why would ZE call the Daily Treasury Statement the “primary data”? Because that’s the way a pompous ass talks. And not only do I have every number ever published by the Treasury Department stored in a MySQL database, but I have been updating it every day at 4pm since before Zero Edge even existed.

The TARP Gap Strikes Again
On Thursday, SPY topped out just pennies above the upper boundary of its TARP Gap (blue arrow), and on Friday, it closed just pennies above the lower boundary (black arrow). Amazing how those levels acted as magnets, no? (click chart to enlarge):

Here is a chart showing the potential head-and-shoulders reversal pattern on the SPX that I mentioned in the comments on Friday afternoon:

It’s not a large pattern, and may only deliver a modest correction. The blue line shows a target near 1161, which is near the March 26th low (blue arrow). Also notice that the green neckline is slanted downward, and the right shoulder level is lower than the left shoulder level. Those are signs of weakness and may indicate that the pattern will go lower than the standard target.

HOWEVER, this is still a bull market until proven otherwise, so bearish patterns must be expected to have a higher-than-normal percentage of pattern failure. This market loves to decline in a falling-wedge pattern before barbecuing the bears, so be alert for the telltale wedge.