Chicagostock Trading

Chicagostock Trading

Will Bullish SP500 Patterns Hold Up? All Point To Year Highs



This year started out with a gap above last year's close of 1352.50, leading the market into highs of 1419.75 on March of 2012, which was met with the last level of resistance before the 1441 May 2008 highs which is the reversal that led into 665.75.  The SP500 retraced to test its year lows of 1259.75, only to hold and put in a double bottom at 1262.00 on June 4th.  Since this low failed to take out the year lows, the market bounced early June to squeeze shorts and make a 1342 high.  The market backed off this high and retested the short squeeze by pulling into lows of 1297.00 and holding to create a right shoulder of an inverted head and shoulders pattern as the market was testing its head of 1262.  With the test of the lows holding and the market turning, more shorts were caught as the market rallied through 1342 for another squeeze in attempt to break above its 1342 neckline, only to hit highs of 1357 and stutter.  The market met resistance at its 100day moving average along with the levels from where it broke down May 11th.  Following this failure to hold above the neckline the market was sold along with news from Reuters that “Goldman Sachs recommends shorting US stocks” with a 1285 target.  This news led to weak hands selling dropping the market down to 1317 off its highs of 1353 that day. This retested of the right shoulder lows of 1297 as the market hit 1302.50 on Monday, June 25th.  The following day the market tested this low with a 1303.25 low, and held to reverse and squeeze shorts running into resistance at 1330.  The market backed off this resistance level and retested Tuesday’s reversal by finding support at the open 1306.75 and once again putting in a reversal on this Thursday.  This action created a rounded bottom as the market failed to break below 1297, causing a run higher on Friday to squeeze out shorts due to the failure to break lower, retracing the market into 1375.  This action created a U turn as the market came back above 1357 which was where it broke down and rounded out to come right back into this level. Also known as a CUP.


Since the reversal seen into 1375, the market has gone into consolidation in attempt to build a handle for the cup as downside support is tested.  This handle has retraced the market down to where it reversed at 1328 from June 28th.  This is much steeper then the bulls would like and has the market pressing against this old resistance, acting as new support being the level where the market reversed higher into 1375.  On Thursday, July 12th the market shook below this level into lows of 1319.75 which hit the bottom of its rising channel from the 1283-1302.50 lows as seen above.  The market bounced off this channel and closed above 1328.  Going forward this level remains support with small stops below 1319 followed by larger stops below the CUP lows of 1302.50. A break below this low voids out the cup/handle and puts pressure to test the June lows within 1282-1262.  A close above 1342 is needed to close above these most recent highs and attempt to break out of this handle pattern to retest the premature breakout of 1357-1375.   A break above this confirms the cup/handle pattern with a target of the year highs.  Following this the next major resistance comes in at 1390 off the failed 1411 high in May. This cup/handle formation is also within the larger inverted head/shoulder formation with the left shoulder lows of 1287.25, head of 1262.00, and right shoulder of 1297.00 with a neckline of 1342.00, also targeting the year highs at 1422.  To void out this head/shoulder formation the head of 1262 must be taken out which gives room to take out the year lows of 1259.75 and fill the gap from last year at 1252.50.  So long as this gap is open, the bull is alive as a double bottom has formed by an inverted head/shoulder against the year lows which keeps pressure against sellers as the market attempts to squeeze shorts higher.  The ultimate objective above the year high is squeezing the May 2008 high of 1441 being the high the market reversed from that led into the crash down to 665.75 as seen in the weekly chart. 





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