As scary as last week’s drop was to some investors, we saw it as the natural result of a Bat Pattern completion. From Nov 3, the day SPX topped out at 2116.48:
SPX reached our upside target of 2104.21, completing a Bat Pattern at the 88.6% retracement of the drop from 2134 (May 20) to 1867.08 (Aug 24.) The normal repercussions of a Bat completion would point to at least the .618 [2032.48] or below.
As SPX dipped below our 2032.48 targeton Friday, it seemed like things were getting out of control. Still, our charts indicated otherwise. From Friday’s post:
From a technical standpoint, the bounce is having a hard time getting underway. I can only take this to mean that the MM’s are purposefully creating confusion for the purpose of shaking loose weaker players before whatever comes next — which still appears to be a big bounce… Think of all the great short bets over this past week that only paid off if someone was willing to hold overnight. I believe this is the flip side — a well-designed bear trap.
After yesterday’s stunning 33-pt rally, it’s now pretty clear that it was, indeed a bear trap.
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