The S&P 500 – Old school chart patterns

I’m intrigued by the recent congestion in S&P 500 prices.  Up and down it goes.  Here’s a chart of the past 6 months-ish:

Mirror, mirror on the wall... Source: thinkorswim by TDAmeritrade

Mirror, mirror on the wall… Source: thinkorswim by TDAmeritrade

Unlike the relative smoothness of trends in the past, we’re now in an undecided market.  According to (very) traditional technical analysis, I reckon this could be a sign of multiple chart patterns:

  1. Head and shoulders top: see here.  The recent run-up might negate, but still seems to signal further downward move.
  2. Double top: here.  Is 2060 on /ES the top, and we’re on our way back down?  Or maybe we need another run to 2080 to verify the old top, before heading back down?
  3. Triple top: here.  Maybe we can say the runs to 2060 are just 2 more tops added to the 2080?  In which case reversal time?
  4. Falling wedge: here.  Perhaps we’re seeing the high/low runs compressing in a falling wedge, indicating a possible upside breakout?

So many people sign up to newsletters (some of which are very exclusive (read: expensive)) which purport to have amazing chart pattern analysis.  Others buy expensive chart pattern software.  I’m clearly a dunce, as I can’t figure out whether one pattern is better than another in the case of the S&P today.  Assuming complete ignorance, I could equally weight the above observations and come out on the side of a continued fall in S&P prices.  I place roughly 50% confidence in my assertion – so less than the weather forecasters who predicted at least 2 feet of snow in NYC yesterday.

In sum: back to the drawing board.  Not literally – probably won’t use hand-drawn lines to guide my trading anytime soon.


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