A Cautionary Pattern For The Bulls?

The market ($SPY) has rallied a little less than 6% off the most recent swing lows. We are finally above that dreaded 50 day moving average, which had been acting as a major resistance area. However, the coast is not clear yet. There’s a pretty cautionary pattern forming that the bulls have to be aware of. And I’m not the only one worried about being a stubborn bull here.

The Chart

$SPY Daily

Here is a chart of the SPDR S&P 500 ETF. As you see, we’ve had a nice bounce off the lows. However, we are running up against some resistance. But the trendline is not the what worries me. It is the broadening top pattern, also known as the megaphone pattern.

While the argument can be made that this is a descending broadening wedge, which typically is more bullish, I like to keep things simple and view it as basic as possible. There’s a big volatile range, and the price is setting lower lows and lower highs. And until I see something different, I will be lean more cautious-neutral. Bigger picture, this is actually bullish. We are having a nice consolidation phase near all-time highs after ripping year-to-date. But short-term, one has to be cautious here to the long side.

(The Dow Jones Industrial ETF, $DIA is also showing a pretty similar pattern.)

SPY daily



















The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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