When the market broke its H&S neckline, I looked to the left of my charts to see possible support areas. One area that I noted and placed on my charts was the Wave 4 from last November ($112.95 – $117.59).
S&P 500 ETF (SPY) daily chart:
Well as we all know price crashed through this support area and has been fighting to get back into this zone for the past couple of weeks.
So looking at the current daily chart, we can see the possibility of a classic "ABC" corrective bounce forming. The final leg "C" could have just started … a 100% extension would take the SPY up to the 50% fibonacci level which would also be the top of the Wave 4 area ($122.95 lime green horizontal line) and most likely the 50EMA when it gets there. That is a lot of confluence for price to battle through.
Another alternative is price "kissing" the underside of the Wave 4 zone and failing (the classic "kiss of death") … that is what is possibly happening this morning.
Stepping back, does any of this make sense? It does, as classic technical analysis tells us once an area of support (Wave 4 zone) is broken it becomes and area of resistance.
Looking at that zone this morning made me wonder what significance it had on a longer term chart …
S&P 500 ETF (SPY) Monthly chart:
I was quite amazed when I zoomed out to the monthly chart … look how this area/zone has acted as an important area for the past 10-12 years. This tells me that I should really keep this zone front and center in my analysis.
Its telling me that if SPY can get back above this zone (and be accepted by the market) then I should get bullish and expect higher prices … on the flip side, I should respect lower prices as a possibility if price can not get clear of this zone. Until price shows me what it is going to do with respect to this area, I plan to keep my macro accounts in mainly cash and keep a tight leash on the length of my Trading account trades. Cheers …Leaf_West
