A Trifecta of Patterns


“As long as karma exists, the world changes. There will always be karma to be taken care of.” – Nina Hagen

On 11/22/21, the SPX truck an ATH at 4744 and reversed with authority, closing on its low and leaving a Key Reversal Day.

It led to a decisive retreat of 248 points over 9 sessions.

Needless to say, it was anything but a straight line.

This December has been a remarkable example of whiplash. The SPX has traveled day by day from close to close this month approximately 818 points.

That’s close to close, NOT INTRADAY.

Intraday, December has been much greater.

That’s pretty remarkable considering the entire index was trading at 666 at the 2009 low.

On 12/16, the SPX challenged the November 4743 high, trading to 4732 and once again reversed, dropping sharply.

In the process, the index undercut a trendline connecting the early October low and the early December low.

Below is a chart from that time frame.

I didn’t fully anticipate the significance of that Bear Trap or Undercut & Rally pattern.

My bad… as the last 3 sessions of last week perpetuated a rip to an all time closing high.

The key to the pattern was the immediate recapture of the 50 day line.

So in the process, the SPX has traced out a test failure of the November high on Dec 16.

It remains to be seen if we have a Test of a Test failure on the table with another reversal occurring in coming days/hours.

In other words, if Dec 16 was a failure at the November high, then another failure here in the same region would be a Test of A Test failure.

Those of you who are long time readers have seen me talk about this Test of a Test pattern (at both highs and lows) — markets play out in 3’s.

It can be powerful as stocks like to test highs and lows, and when they do so, they talk. This is when we can best take the temperature of the market.

This potential Test of a Test pattern is in addition to the mini 5 point Megaphone Top pattern flagged last week.

As well, we have a possible Soup Nazi sell signal on deck.

This occurs when a stock/index makes a new 20 day high and reverses back through the high of at least 4 days prior within the 20 day lookback.

So today, the SPX could generate a Soup Nazi sell signal if it knifes back down through 4731.

It is already flirting with such a signal as the index closed marginally below that level on the runoff on Thursday, closing at 4725.

But, as you know, follow through is key. It is always best to let the market speak rather than try to jump the gun in this game.

In sum, checking the September high shows a light volume run up into that peak.

A Gann 270 point decline followed within a month.

The SPY volume of the last 3 trading days has been even more puny on the spurt to an ATH.

In fact, Thursday was the lightest volume trading day of 2021.

How the SPX can rocket 210 points in 3 days on no fuel beats me, but if the September low-volume peak is any guide, caution is warranted.

Additionally, the SPX carved out a high in early September, a low in early October, a high in early November and a low in early December. If this alternating pattern continues, early January should be an important high… plus or minus.

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