S&P 500 – Reversal Update

Hi,

I posted a blog on 20 Jan setting out details of  how the S&P 500 was positioned for a possible reversal from the 5 swing advance that began last July. The strategy outlined involved a close stop and this was taken out on Thursday 26th

To keep things brief, I won’t go through the 5 swing analysis again. You can easily check it out in the 20 Jan post if you’re interested. 

The original peak in the Fibonacci cluster zone I referred to has been taken out but the market is still in the cluster zone . One possibility is that we may get some sort of re test of the first peak. This is typical reversal pattern behaviour. In fact there is now potential for an M reversal set up using Bollinger Bands

In this set up price makes an M like formation. The first peak in the M occurs outside the upper Bollinger Band which means it is has strong variance from the middle band (moving average) . This indicates strong trend momentum. The set up is completed if the next trend peak occurs below the upper Bollinger Band. This shows weaker momentum. A reversal in trend is very often preceded by declining momentum as uncertainty builds.

Note the 2 peaks in the M don’t have to be at the same level like a perfect double top. The M can be quite skewed in appearance. The best set ups often occur when the 2nd peak is  well above the first one looking like a continuation of the uptrend to the naked eye. The key though is that then 2nd peak must be below the upper Bollinger band

A conservative approach is to wait any 2nd peak to be confirmed by a close below the low of the candle making the peak. If we get a set up, I’ll post some strategy ideas

You can follow us on Twitter at RicCharts or DaveCharts

Cheers

Ric

About Ric Spooner

Over 30 years market experience - professional trader, broker, director
This entry was posted in Market, Shares, Stocks, Trading. Bookmark the permalink.

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