SPX Inverted H&S – Day 2

Here is an update of yesterday’s chart (click to enlarge):

The futures are sagging a bit as I write this, so maybe a right shoulder will form tomorrow. Notice that the neckline is higher than yesterday’s chart, so the target (red “X”) is also higher at 1135. That level is about a 78.6% Fibonacci retracement of the drop from the highs. So, a bullish resolution of this pattern has enough juice to get up to the peaks, but perhaps not to surpass them.

For the bears: SPY’s volume on the last two rally days (Monday and Tuesday) was lighter than the prior two plunge days (Thursday and Friday). So, that’s a bearish factor. If SPY heads down on strong volume Wednesday, then maybe it will blow right through the lows.

Short term, NYSE breadth is stretched and likely to weaken on Wednesday, though that doesn’t always translate into lower prices. NDX breadth and R2K breadth were actually weaker on Tuesday than they were on Monday. You could read that as a bearish divergence, or that they have room to move to the upside. So, perhaps we will have a mixed day with the SPX flat or down, and the small caps and techs rallying a bit.

This entry was posted on Tuesday, February 2nd, 2010 at 9:31 pm and is filed under Investing. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.