SPY – Corrective Or Something Else? (by Leaf_West)

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The question that everyone has is whether or not the bull move off of the summer 2010 lows is over or not?  The saying goes … "they don't ring a bell at the top!!".  All we have to go by is our Spidey Senses our Nija Level 9 t-shirts and the charts.

So what do the charts tell us …

SPX_May 21, 2011_Daily_01

So far the chart from the past couple of months shows us that price has been giving us classic signs of nice tight trending candles higher and corrective overlapping candles/patterns lower.

Since the March Japan-driven crisis lows, the market has put in higher highs and higher lows … another feather in the bull's cap.

The Moving Averages all remain in a bullish stance … 20ema > 50ema > 100sma > 200sma.

The only real question mark will be answered this coming week I believe …  the chart below highlights that the moves higher since the late-April top have been "corrective" in appearance.  If the move lower is not over then we should not get a close above Thursday's high of $135.03.  To the low side if the ABC corrective move lower is over, we should not get a move below the 50EMA of roughly $133.00  It's a simple as $135 and $133 … until those levels are breached I think traders should be playing it safe.

SPX_May 21, 2011_Daily_02

The above analysis fits in with the look of the 60-minute triangle analysis that I posted on Friday … here is the chart from that post.

SPY_May 20, 2011_60min_02

Summer of 2010

I thought it might be useful to look back to last summer to review the "look" of that corrective period …

SPX_May 21, 2011_Daily_03

Notice how the bigger waves are mainly overlapping in nature and most of the candles are overlapping in nature.  The 20 EMA crossed lower than the 50 EMA and the correction was not really over until a higher low was made and then confirmed when the 20 EMA crossed above the 50 EMA.  By this time helicopter Ben had all the printing presses warmed up and in perfect working condition.

In the end, people are not going to correctly "predict" the direction of the market based on Euro problems, housing foreclosures, or the price of rice in China.  The only thing people should really be watching is PRICE.  After all there is good reason why people say " PRICE IS KING".

Cheers … Leaf_West and @Leaf_West on Twitter