SP500 Rallies Back up to Neckline of Head and Shoulders Pattern Lower Volume

The SP500 today rallied all the way back up to the down sloping neckline of the small head and shoulders topping pattern that formed at the end of April 2010.

Rallies back up to the neckline of confirmed head and shoulders topping patterns is extremely common.  I should also note that this rally back up to the neckline was on significantly weaker volume than the volume that occurred on the downside breakthrough of the neckline.

The intraday chart shows that the SPY is trading in the form of a rising wedge on lower volume.  This should mean that we will break down again from here and perhaps attempt to fill the large opening gap that marked the Euro Bailout.

If the SP500 somehow manages to bust higher again tomorrow or Friday as well and get above and stay above 1182 then something is completely wrong with the bear scenario.

I have drawn the neckline of the head and shoulders pattern in downsloping fashion.  However one could also draw a neckline that is horizontal and give the SP500 allowance room to move up to 1182 or so. 

I am still confident that the May 6th high volume spike low will eventually be retested, but the issue is WHEN.  We still need more price data in the days ahead to get a better idea.  But ideally the SP500 should really be halted where it is now on a closing basis.  It could rally tomorrow, but if it does, then I would want to see a close that is at the same level as which we closed today.  A rally tomorrow and a significant close higher tomorrow is going to be a problem for the genuine bear case.


So combined with the classic head and shoulder neckline restest and the rising wedge on lower volume one would think a retracement should start tomorrow and perhaps continue into Friday of this week.

Posted in Index Trading, Market Timing, SP500

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