A frequent theme in these notes has been that sideways equals sidelines with the whipsaws of a sideways trend tough to predict and equally tough to trade despite the hype that traders love “trading the range” up and down.
Maybe this is true of the best traders but for most traders – and chartists – it is most sensible to make note of a sideways trend by attempting to identify its bottom and top and something that is tough to do until after the fact, and one of the big reasons trading the range is advised against, while patiently watching those whipsaws and waiting for the sideways trend to break. It is possible to try to call and trade the tactical moves within the range but such calls should be couched by the unpredictability of the range with flexibility to abandon a tactical call completely if appropriate.
In looking at the weekly chart of the S&P, there’s another reason sideways equals sidelines unless you are short and that is the fact that it appears the next big whipsaw will be a serious swipe down in the sideways trend and one that started yesterday and so perhaps this is as good a time to do the silly and what was warned against above and to take a stab at the possibly dangerous tactical trading within the current and very wide sideways trend.
“Wide” really needs no explanation with the two-year sideways trend comprised of two huge rallies and one correction with the other correction to come should this trend hold as is likely based on the more minute technicals as follows.
First, the S&P is trading in a confirmed weekly Spike Top that carries a target of 1285 and right near the bottom trendline of what was identified as a Symmetrical Triangle in yesterday’s note and this Spike Top should fulfill within days and probably into the EU summit as was suggested yesterday too.
Second, the S&P is trading in that massive Symmetrical Triangle and one that presents bearishly due to the Head and Shoulders pattern that can be made of it with both patterns carrying roughly the same objective of 1112 on confirmation of 1267. It is due to the H&S that it seems less likely to break up toward it 1577 target and probably as unlikely that the S&P will try to trade back up to the top trendline of that pattern near 1353 should it trade down toward the index’s 200 DMA as seems likely.
Third, these relatively small technicals aspects come in the context of what appears to be a decent Double Top that confirms at 1075 for a target of 728 and a pattern that promises, at a minimum, the equalizing correction to come while putting constant bearish pressure on the S&P’s chart.
Put otherwise and as consistent with the analysis of last Friday’s Another Sideways Summer for the S&P, it appears that the S&P is set to make a major swipe down in the sideways trend with much of the technical evidence pointing to the possibility that it will be broken to the downside rather than setting up another move up in the volatile trading of an ultimately bullish Inverse Head and Shoulders pattern.
Such a diagnosis appears to be confirmed by the S&P 500 Bullish Percent Index that is showing a weak weekly Spike Top of its own that will close the gap at 50.60 to set up a move down toward 40 at an absolute minimum.
This sort of a potential move down by the S&P 500 Bullish Percent Index to 40 supports the S&P breaking one of the many inner ranges of its two-year sideways trend at 1267 to work on the bottom of another range near 1170.
Interestingly but not too surprisingly the likely drop to come in the S&P first to 1285 and then 1267 and then probably 1170 as one tactical move down in the sideways trend in early-to-mid July is supported by the weekly chart of the VIX as well.
Besides showing a confirmed and bullish Falling Wedge within its two-year sideways trend that carries a target of 48, the VIX is now showing a weekly Spike Bottom that confirms at 21.98 for a target of 27.19 in potential trading that would set up a Double Bottom with a target of nearly 40. Maybe the VIX trades back down slightly today or tomorrow to close a daily gap at 19.37, but overall, the VIX looks ready to take off higher and probably much higher.
It is for the sum of all of these technical reasons that the weekly charts say that the S&P is not the summer place to be.