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SPY Rectangle

SPY may be forming a neutral rectangle pattern. Here is a 60-minute chart showing the potential rectangle bounded by purple lines (click to enlarge):

The lower purple line is well established, having been touched a few times. The upper purple line has seen a lot of trading action. It is possible that this rally wave will top out there Friday. If so, I may do some shorting at that level in anticipation of a pullback, especially since month-end markup buying will disappear on Monday.

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This entry was posted on Thursday, October 30th, 2008 at 8:09 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.

7 Responses to “SPY Rectangle”

  1. junglegirl says:
    October 30, 2008 at 8:47 pm

    Matt,

    Funny how you should post this. I just this instant finished reading Edwards and Magee on this topic, as I was wondering the very same thing. Of note, pg. 134 states “But true Rectangles… are truly characteristic only of trading in individual issues.” Thoughts?

  2. junglegirl says:
    October 30, 2008 at 8:52 pm

    I haven’t yet abandoned the triangle in wave 4 of 3. I was just trying to keep an open mind about what happens if the pattern degrades into something else…then what? We may go up a tad tomorrow, with month end, and then see downward pressure next week. Interesting times, for sure.

  3. admin says:
    October 30, 2008 at 9:36 pm

    junglegirl,

    SPY is traded as an individual issue by many traders and in very high volume, so it might be OK to apply a rectangle to it.

    Though I will say that because of the wild volatility, it’s not easy to figure out a nice, neat pattern. And the few rectangle’s I have seen start to develop in this bear market haven’t lasted long.

    Matt

  4. Bob says:
    October 30, 2008 at 9:52 pm

    Couldn’t a case be made for a cup and handle pattern if we see good volume on a breakout of 97ish?

  5. admin says:
    October 30, 2008 at 10:52 pm

    Bob,

    A cup-and-handle is supposed to be a continuation pattern in a bull trend. What we need is a reversal pattern, a consolidation pattern, or a bearish continuation pattern. But it does look a lot like a cup…

    Matt

  6. Leonard The Monkey says:
    October 30, 2008 at 10:59 pm

    So Matt when do you think is the best time to establish a bearish position given this – just after the year end markup – say Monday morning/Friday evening or is this something that you think may have a little more leg?

  7. admin says:
    October 30, 2008 at 11:13 pm

    LTM,

    I like the 984 area for a rally top. As for timing, we are pretty well overbought right now. However, with potential mutual-fund markup support on Friday, and PPT political markup support on Monday and maybe Tuesday, timing is not easy.

    I will put on a short position sometime tomorrow and hold it over the weekend though.

    Matt