SPY Ready to Rally?

In the previous SPY chart, I pointed out a potential falling-wedge reversal pattern. And while it wasn’t terribly impressive, the wedge did indeed pop SPY out of its downtrend channel. Here is a 15-minute chart of last week’s trading (click to enlarge):

The IWM popped out of its channel also, and its chart looks more impressive than SPY’s. However, the QQQQ is still trapped within its channel, so that is an important non-confirmation. Blame Steve Jobs and that new “phoneless phone” of his which dragged Apple down, and the Q’s along with it (though the Q’s did manage to close above their 200-day moving average).

The XLF celebrated the watered-down FinReg bill by running up an impressive bull-flag pattern on its intra-day chart. Can the XLF lead the market higher? Perhaps, though on Friday it looked like we had rotation out of tech and into financials, which doesn’t strike me as terribly bullish. Also, NYSE breadth ran up to near the top of its range at +1,430, and all the bulls had to show for it was a lousy 3 points. That’s not encouraging.

However, it is possible that traders will be taken by surprise by Bloomberg’s survey of economists which showed that the consensus estimate is for +113,000 private-sector jobs in Friday’s big jobs report. Everybody “just knows” that the economy has gone off of a cliff, right? But in reality, companies are hiring at a brisk rate. For example, this Wall Street Journal story reports that Red Hat (Linux) of Raleigh, N.C., is expanding its workforce by 25% from 3,200 to 4,000 geeks. One day, IBM will buy Red Hat and send all of those jobs to India, but until then small tech companies like Red Hat appear to be doing land-office business and are staffing up.

As I write this Sunday night, the futures are green and trading sedately, so their body language is bullish. Of course, things can go haywire when Europe opens in a few hours, but let’s think about what a bullish Monday might look like for SPY. This 5-minute chart of the last two days shows that SPY tried to print in inverse head-and-shoulders reversal pattern:

However, Friday afternoon’s rally wasn’t strong enough (red arrow) to reach up to the level of Tuesday’s high (red “X”). So, SPY was not able to print a horizontal neckline, and the pattern should be considered a neutral symmetrical triangle.

With a bullish resolution, SPY might be able to rally $1.50 based upon a 100% Fibonacci extension:

From the 100% Fibonacci level, I have drawn a blue line to the left, and it lands right on the top of SPY’s down-gap from Thursday. So, that seems like a reasonable target. The IWM completely filled its Thursday gap already, and that’s an indication that SPY may be able to follow suit.

Let’s take a look at the Fractal Dimension Index on the daily chart:

The green arrow at the right of the chart points to and “End of Range” signal. The last such signal (purple arrows) appeared on May 5th, the day before the Flash Crash, and SPY broke out of its range rather emphatically. Not a bad signal, huh? So, SPY is poised to make a big move, though the FDI can go higher before SPY breaks out. Perhaps we won’t get the breakout until Friday’s jobs report. And don’t forget that the FDI does not predict the direction of the breakout, only that it is likely coming soon.

Other bullish factors are that all of the top ETF’s made, and held, 9/36/15 cross-ups on Friday, and the TRIN is in a bullish condition. This chart shows the QQQQ in the bottom panel, and a three-day moving average of the NASDAQ TRIN (TRINQ) in the upper panel:

If the moving average has indeed peaked (blue arrows) and turned down, then it may be signaling that a swing-low has been printed like it did last time on June 8th (purple arrows).

But as long as the Q’s are trapped in last week’s downtrend channel, nothing good can happen. If the Q’s turn out to be leading the way down, then the bottom of SPY’s June 10th gap at 106.02 is a likely target.

So, the Q’s need to break their trend channel before the bulls can run: