Thursday, September 17, 2015


Let's look at the SPY chart:

For three weeks an ascending triangle has been forming. Today SPY broke above the horizontal upper boundary in a seemingly decisive breakout. But by the end of the day prices reversed and closed at a loss: a classic reversal day.

Now what?

First, the strong reversal was not so surprising. After all, there is strong resistance in the 200 to 203 level.

Second, today's reversal does not preclude another breakout attempt that may take SPY to new all-time highs.

Third, anything is possible. Patterns can morph and change into something else over a matter of days. The ascending triangle? Over the next several days it may become a bearish rising wedge that produces a decisive breakdown. 

All we can do is accept the price action and trade when the reward-to-risk ratio is favorable.

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