The eminis are just 4 points away from completing a well-formed Bat Pattern at 1401.77.
SPX closed only 5 points away from its own Bat Pattern target at 1404.64. This is one of the key price targets we’ve been watching for weeks.
As we’ve been discussing for some time, a reversal here could be significant. I remain short from yesterday at 1399. I posted at the time that a stop at 1406 would be about right, but this is one I’ll be watching rather than leaving up to the computers.
If we should be so lucky to get a big intra-day reversal off 1404, we could still close within the purple channel.
The RSI picture agrees with a reversal here as we’re about to tag TL #3.
One of the more telling patterns I’ve noticed in the RSI is a massive rising wedge that’s formed since April 30 (even though SPX itself has formed a channel.) Clear away everything except TL’s #3 and #5 and it’s easier to see:
What’s even more interesting is that the wedge has reached .618 of the time span between its inception and its presumed apex of around Sept 24.
If all we see is a continuation of the pattern within the rising wedge, that should still portend a sizable drop beginning today or tomorrow. A RSI drop to TL # 5 could mean around 30 points, while a drop to #7 would probably be on the order of 50 points or more.
UPDATE: 10:15 AM
As we creep up on 1404.64, it’s worth noting that the fan line that connects 1576 from Oct 2007 and 1422 on April 2, 2012 is just over head at 1411 or so.
If we ignore the shadow from Apr 2, the current value is about 1407.50. It would be very nice to get a tag of that fan line in the mix of things, today.
I certainly wouldn’t pull the plug on my short position due to a spurt up to 1407 or 1412. Tagging either would help the bearish potential immeasurably.
UPDATE: 1 PM
There’s a tag on the fan line at 1407.
As we’ve discussed often, the daily RSI chart shows actual levels intra-day, but at the close only the closing value is shown. So, a reversal off of TL #3 today would only look like one if we close around these levels.
UPDATE: 3:30 PM
SPX is hanging right around 1402, which is perfect for the bearish case. We tagged the .886, reached the Inverse Head & Shoulders target of 1404, and tagged an important fan line off the Oct 2007 1576 high. And, by closing at these levels, we’ll have left a perfectly placed tag on a key RSI trend line.
Ideally, we’d close right here and gap up to tag 1411 in the morning before the correction gets going. But, I’m not picky. I’d settle for a high of 1407.14.
Some of the other indices support the idea of a slightly higher high. COMP, for instance, got up to within 18 points of completing its Gartley Pattern today (and within 12 of its IH&S target.) Another .50% (the equivalent of 1411 on SPX) will complete the pattern.
The trend lines and channels are well-defined — seen here on a couple of weekly charts.
Like SPX and other indices, there is a path higher. Either of the two rising wedges looks legit. But, the near-term picture is negative.
Meanwhile, RUT came within 2 points of a Gartley completion of its own.
And, NYA came within 42 points of its Gartley completion — also 0.50% away.
UPDATE: 4:00 PM
That’s a good close. The odds favor a slight rise tomorrow — maybe 1409-1411 or so before backing off. A tag of 1411 would also represent a tag on the white channel line we discussed yesterday — right around the “D?” on the chart below.
I’ll be watching this little channel during the day; a break-down or break-out should be pretty easy to spot, and the intersection with the larger channel is pretty clear cut.
GLTA.
Comments
13 responses to “Holy Bat Pattern!”
Pebble – what instruments are you using to play the decline? SPY $140 puts for Sept are looking mighty juicy to me in this +/- $3 range.
I use SPY options quite a bit, but can’t really endorse a particular strike price/expiration because it touches on an individual’s risk tolerance. With that disclaimer out of the way, I do think we’re likely to see a significant dip within the next two weeks, probably followed by a return to these levels or even higher going into the elections. So, Sept expiration probably makes sense in terms of ample time for a move. 140s being at the money means less risk — always a good thing in the options market.
Don’t know if you saw Spud’s comment yesterday on the tax advantage of SPX options vs SPY. It’s worth a read and a chat with your CPA if you do a lot of option trading.
What are you seeing now in the VIX? Is the 13.47 target still meaningful?
I’m going to have to take a fresh look. I’ll try to post something later tonight or in the morning.
Been sitting in cash for a while waiting for these levels and just took a decent short position. The thing that bugs me right now is financials, small caps and the COMP are all leaders on this push higher. Typically, they are the canary in the coal mine. Their price action today makes me a little nervous to be short.
The latter part of today’s post should help with your nerves!
IF SPX goes much higher than 1407, does it mean everybody should go LONG? I can’t stop thinking that people (ordinary investors) all the sudden decide to jump into the stock market because of a bullish technical indicator. In other words, they might be buying at the top (If common sense is still valid, most likely those who join the party late are those who get burned)
Breaking 1407 isn’t a reason to go long, though a close above the fan line would be reason to reevaluate. A fan line wouldn’t mean much to “ordinary investors” but it might to a large number of technically oriented investors and advisors.
I see. Thanks!
Is DX still heading up while SPX is touching 1407?
(everybody loved the US dollars …last week)
C’mon 1404…let’s REACT and drop! Nice TA PW, let’s make it work!
peddling as fast as I can…
This time should be for real…a good correction now and a good setup for “end-of-the-election-year”…let us see…
Sounds about right…