Goodbye July

Here is the chart that I posted in Kiss July Goodbye on September 11th:

Here is what it looks like now:

Notice how SPY tagged my upper purple line on Friday, and then the lower one on Monday. Uncanny, no?

Keep an eye out for these “broadening” patterns. I haven’t noticed one on an intra-day chart yet, but they must be there. They signal wild stuff coming soon.

As Yerk correctly pointed out, Thursday’s candle (the long green one, third from the right on the lower chart) was indeed a bullish engulfing candle. And that was the hint that SPY would tag the upper purple line the next day. However, that bullish indicator then produced a bearish hanging man pattern. It’s not quite so apparent on the SPY chart that it was a hanging man, but if you looked at some other charts like the Dow and S&P futures, it was more clear.

So, that bullish engulfing candle fulfilled its destiny by setting up an overbought condition, and the plunge to the lower purple line.

The moral of the story is that once you have identified a short-term chart pattern, you have to immediately begin wondering what it will morph into next because it never stops morphing.

It’s very odd that the market follows simple geometric patterns so closely, but it has been doing so for hundreds of years. You would think that with all the artificial intelligence systems in there trading with us, that the patterns would be more weird. But so far the AI systems think a lot like we humans do.

11 thoughts on “Goodbye July

  1. After hearing about AIG, I was irritated that I wasn’t bearish enough on the financials. Probably means it time to take a break from trading.

    Nice chart, worked like a charm! Of course, this means that the downside is limited to 1170/1190 or so – unless it morphs again.

    AIG and the FED: should be interesting – much better than boring August. I wonder what surprise will lurk next weekend? Maybe I should just buy an October straddle now…

  2. Danny
    Do you mean 1,175 ? That area also (SPX) coincides with the 50% fib off the last bull run (actually a bit less, 1,170).

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