For most of this week we have been highlighting various bullish patterns emerging in S&P 500 on different timeframes. So far, breakouts from most of these patterns have confirmed their initial bullish intent.
After Monday May 23, 2016, we commented on the emerging bullish flag on the daily charts. That day, the market was mostly range bound but still, many bullish price patterns formed within that market-action. On Tuesday, another bullish flag emerged on 6-minute chart and the price broke out of it at NYSE session open. Tuesday was breakout day from the bullish flag on daily charts too.
Though, S&P 500 followed through on Wednesday, it was stuck in a trading range for most of the afternoon near the upper bound of the range. Market action was still bullish but it gave hints that Thursday not much may happen. Nothing much happened except another bullish pattern started to emerge.
The assessment for May 27, 2016, the Friday before the long Memorial Day was that Thursday’s action might repeat, though, we did say that impending speech by Fed Chair Yellen was adding to the uncertainty. The speech turned out to be the catalyst that the breakout needed.
The 30-minute chart of S&P 500 futures above shows many bullish patterns that occurred during the past week. The comments from the speech came out at around 1:30 PM on Friday and the futures swooned down (see point C on 6-minute chart below). The price had just broken above an ascending triangle. After the speech, it came back inside the pattern. However, the push down was not strong enough to break the lower bound of the pattern. That failure resulted in a catapult action and the price bounced up – above the ascending triangle – in late afternoon trading. In the process an ABCD pattern was formed.
The 6-minute chart above shows the ABCD pattern well. Point ‘A’ is at the 9:12 AM low of 2089.00. Point ‘B’ is at the 11:30 AM high of 2095.50. Giving an AB leg of 6.5 points. The point ‘C’ is at the low of 2089.75 made at 1:36 PM after Chair Janet’s comments. Usually, CD leg of the pattern turns out to be a Fibonacci ratio of AB leg. The day closed at a high of 2098.75 just before the trading was for the week finished at 5:00 PM. The high is approximately 138.2% of the AB leg.
The up move that started from the lows of February is not over yet. The daily chart below shows a down-sloping flag. This flag is bullish in nature. In its true form, it usually appears at the middle of a strong move. The move from the lows to the high of the flag is called the flagpole and the subsequent move from the low of the flag generally equals the flagpole.
The February 11th low was 1802.50; the high point, on April 20th, before the start of flag, was 2105.25 giving the height of the flagpole to be 302.75. The low of the flag on May 19th was 2022.00 giving us a target of 2324.00.
When, how and if this will happen depend upon many things. The path to this target is not going to be smooth nor straight. To begin with there are many resistance levels ahead that may force the index to retrace. First, S&P 500 has to clear April 2015 high before the target becomes relevant. Then there are many fundamental, monetary, political events – like corporate earnings, Fed-rate hike, Brexit, Chinese growth concern etc. – that are looming on the horizon and may throw a spanner in the works and deny S&P 500 its due – i.e. reaching the target of bullish flag.
Whatever the odds for the flag-target to be, and they do exist, one thing is certain that S&P 500 is going to make another attempt to break the all time high of 2134.72 made in May 2015 soon. Whether it will be able to break that level – well that is why ‘time’ is created so that everything do not occur simultaneously..