SPX: Just another take on the same thing everyone is looking at
This is nothing new. Everyone is talking about the megaphone pattern on SPX and all the previous times this has happened. I have seen many charts on social media comparing various other times in history. Most of these charts are trying to make a fractal case, but comparing weekly charts to monthly or daily charts with 4 hour charts. The problem I have with fractal is, it's trying too hard to fit things into a box that may not be completely within context. So, I decided to spend some time to see where in history something similar played out and yes, I see it too. Last time I can see something similar played out is between 1960 - 1974. So is this a fractal? May be, maybe not. One thing to understand is where in the fractal the current price action is playing out. This is what I can see with my sleepy eyes without getting too much into the weeds. By the way, the megaphone patterns have a tendency to break upwards more often than not. So the question; where SPX is going from here? Let's look at the monthly chart in log scale side by side. Only indicator here is RSI.
1. 1960 - 1962 : Rounding top situation. First a bearish divergence in RSI form upper 60s to mid 70s levels. This creates a double bottom and a bullish divergence in RSI and off she goes.
2014 - 2016: Kind of stalled top, bearish divergence, but doesn't break down. Slightly hidden bullish divergence on Sep 2015 and Jan 2016 closing lows and boom.
Now this sets up for the next observations.
2. The megaphones 1966 - 1974: Low in points A, C and E wicks get support right on the previous breakout area but don't get down all the way to previous support base. Multi year bearish divergence on RSI and on a downward channel.
Fast forward 2019 - today. Pretty similar situation looks like.
3. Fib extension 1966 - 1974 from points A, B and C: Point D touched on 1.414 extension and then gave it up.
Fast forward 2020, Fib extension 1.414 just got breached by maybe 40 points. So I am calling this point as point D in my story.
So how does this story end? Well, going with the bear crowd here for now. Unless SPX makes a rally past fib extension 1.618, I am thinking this is all she wrote for now. And, if we are talking fractals, then price might not breach the bottom support from 2016/2017 lows. And after that, it will be all peaches and cream for years to come. Let's see how this plays out.
1. 1960 - 1962 : Rounding top situation. First a bearish divergence in RSI form upper 60s to mid 70s levels. This creates a double bottom and a bullish divergence in RSI and off she goes.
2014 - 2016: Kind of stalled top, bearish divergence, but doesn't break down. Slightly hidden bullish divergence on Sep 2015 and Jan 2016 closing lows and boom.
Now this sets up for the next observations.
2. The megaphones 1966 - 1974: Low in points A, C and E wicks get support right on the previous breakout area but don't get down all the way to previous support base. Multi year bearish divergence on RSI and on a downward channel.
Fast forward 2019 - today. Pretty similar situation looks like.
3. Fib extension 1966 - 1974 from points A, B and C: Point D touched on 1.414 extension and then gave it up.
Fast forward 2020, Fib extension 1.414 just got breached by maybe 40 points. So I am calling this point as point D in my story.
So how does this story end? Well, going with the bear crowd here for now. Unless SPX makes a rally past fib extension 1.618, I am thinking this is all she wrote for now. And, if we are talking fractals, then price might not breach the bottom support from 2016/2017 lows. And after that, it will be all peaches and cream for years to come. Let's see how this plays out.