Over the weekend I put out a simple picture to show you how to judge the S&P 500. A chart with a triangle on it that showed a bull to the upside and a bear to the downside. Someone noted that the bull looked fake, like he was on vacation with a picture as a stand in. Judge for yourself here:
My response was that 'yes' it was a stand in, as the bull was on vacation. Well a strong move Tuesday and follow through over night and it looks like the bull is back from vacation, tanned, rested and ready to run. One other thing to note in that picture is the triangle that formed after the fall. Look in more detail below.
The chart above shows that triangle on a 5-minute basis since the fall in late August. There are a few important things to notice about it. First, it had 5 good touches at the bounds of the triangle on August 26, August 28, September 1, September 3 and September 4, where it bounced back in the opposite direction. This is the point where a technician would look for a strong move to occur after 5 touches.
It also has moved from a point where it is almost exactly 2/3 of the way through the triangle. From 13 points at the wide end to about 5.5 points now. This is known as the power zone. A break of the triangle here is thought to have the most power to move. And the target move out of this triangle is for 13 points.
As I wrote this morning in pre-market trading, the S&P 500 was breaking that triangle to the upside. A trigger. This is bullish (look at the first picture) and would target a move to about 210 on the (NYSE:SPY) ETF. There are no guarantees and the path may not be straight, but it is a definitive break of tightening consolidation to the upside. Don’t ignore it. A move over 200 would add even more strength.
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