SPY's Triangle Reflects the Chop, but Battle Lines Converge

Updated

Primary Chart: 195m chart of major US index, the S&P 500 represented by the SPDR® S&P 500® ETF Trust, with symmetrical triangle pattern and anchored VWAPs

SquishTrade has posted fewer analyses lately as markets have been quite uncertain and choppy. When there is less certainty in the analysis, there should be less to say. And prudence dictates avoiding confusion by creating analyses and forecasts when trends are unclear and markets remain choppy.

This post will not present a directional view given the high level of choppiness and uncertainty. Instead, it will show where the battle lines, so to speak, are drawn. The market may deign to inform us where the next trend move will be when key levels begin to break. And sometimes, markets will not inform us until after a few false moves—in other words, lies come before the truth perhaps. Indeed, this market has been difficult to trust even for directional moves under one or two days' time.

First, the smaller triangle within the larger triangle will likely break even if a false break comes before the real one. This may coincide with price breaking to the other side of key anchored VWAPs shown as well. This may signal whether the upper or lower trendline of the larger symmetrical triangle will be tagged next. But until the upper or lower trendlines of the triangle are broken decisively, i.e., not a false break, the trend may remain unclear.

Rate volatility has perhaps exacerbated the uncertainty in equity markets to an even greater degree as rates on the shorter end of the curve have whipsawed dramatically, e.g., 2-year note and yield both whipsawing along with Fed Funds rate futures and other interest-rate products and instruments like the Eurodollar futures.

Here are the key points to watch in the coming weeks:

The longer-term symmetrical-triangle pattern shown on the Primary Chart
The smaller triangle within the larger symmetrical triangle, shown on Supplementary Chart A below
Supplementary Chart A
The key anchored VWAPs, Supplementary Chart B, that are converging and compressing similar to the very nature of the larger triangle's own converging trendlines, though VWAPs are more fluid and curvy
Supplementary Chart B
The POC on a daily chart has remained around 395-396 for quite some time (not shown), and this remains a key pivot for SPY
The POC on a weekly chart has remained around 393.70-394.90 for quite some time (not shown), reinforcing the key pivot on the daily at 395
Several Anchored VWAPs and Fibonacci levels all coalesce around 390 (ranging from 389-392); a key gamma level on PSY also lies here.

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Author's Comment: Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate (respectfully presented) in the comment section. Shared charts are especially helpful to support any opposing or alternative view. This article is intended to present an unbiased, technical view of the security or tradable risk asset discussed.

Please note further that this technical-analysis viewpoint is short-term in nature. This is not a trade recommendation but a technical-analysis overview and commentary with levels to watch for the near term. This technical-analysis viewpoint could change at a moment's notice should price move beyond a level of invalidation. Further, proper risk-management techniques are vital to trading success. And countertrend or mean-reversion trading, e.g., trading a rally in a bear market, is lower probability and is tricky and challenging even for the most experienced traders.

DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified financial adviser or other investment / financial professional before entering any trade, investment or other transaction.

Thank you for reading. If this post added clarity or prompted additional thoughts on the technicals of SPY, please comment below!

Note

ES Mini S&P 500 futures are pushing above a critical VWAP level anchored to a recent swing high. Whether this holds will be important as to whether SPX can follow and push back above its own 2/2/23 VWAP in the cash session today.

Note

Now that SPY is above the blue VWAP from 2/2/23, this sets up a scenario where SPY can return to 405, and *possibly* 410. But SPY has to hold above this blue VWAP from 2/2/23 obviously. Short-term bullish case developing with a tag of the upper triangle line potentially in the works.

The .618 R lies at 403-404.

Note

SPY will likely tag .618 retracement this week. If it breaks above the .618 retracement (shown above at 403.92)—and if it holds above that area, which is a big ask in this choppy market—then this puts the Feb. 2 highs in play

Note

Here is one more perspective. The teal-blue circles represent resistance areas above where it appears the parallel channel that SPX / SPY has been respecting can continue higher to the upper edge of the triangle.

After the squeeze today, it seems the risk / reward for an entry here is poor. If SPY can retest the breakout level around $398 that might provide a nice entry provided $400 reclaims soon afterward.

There is no point in "predicting" that the triangle will successfully break to the upside when that prediction is pure speculation based on the current technicals. As discussed in the main post above, false breakouts are common. And a reversal off the highs from 2/2 is also a possibility. It's simply unclear for now.

The best inferences right now are that key short-term VWAPs have been reclaimed, major VWAPs (from the all-time high) lie overhead, a parallel uptrend channel continues to remain valid despite a ton of bad news, short positioning has been too extreme, and further upside in the near term looks possible into the resistance levels shown.

For now, based off today's squeezy momentum, SPY can reach the .618 R at 403.92 and then higher perhaps at the upper edge of the parallel channel at 408-410. Watch out for that VWAP from the all-time high at 408.28. These are the levels in play right now, and it's not possible to extrapolate further out in time or further up in price at this time.

A good over/under is $400 on SPY and $310 on QQQ (daily closes must remain above these levels) to continue this ST trend. Dips below $400 that soon recover $400 are likely bullish as they represent failed breakdowns.

If you like this sort of update, let me know in the comments! If you disagree or think something is being missed here let me know as well!

Note

In the original post, no directional view for any TF (short, intermediate or long) was given because price was trapped in between two triangles, one embedded within the other. In addition, VWAPs and the price action also confirmed choppiness within a constricting range at all levels of trend.

Nothing has changed with respect to the intermediate or long-term analysis. Technical analysis still shows SPY / SPX trapped within a range 3800-4150/4250.

The remainder of this update will address the short-term analysis in light of the price action and updates from 3/28 and 3/29.

On 3/28, price broke above the VWAP anchored to the FOMC meeting date / time. It had failed below this previously. This suggested a false breakdown, and suggested more strength could potentially follow, though price action was very choppy before that and difficult to trust.

Next, ES futures started moving powerfully on the evening of 3/28, and SquishTrade updated this post quickly after ES futures broke above a key VWAP anchored to 2/2 highs. SquishTrade also noted in the original post that the key pivot based on gamma and POC on daily and weekly TFs was around SPY $394 (weekly) $395-$396 (daily). SPY's price showed a failed breakdown on 3/28 below that zone level on 3/28, which was the first clue that something might shift in the shorter TFs.

Then price broke above a more significant VWAP anchored to 2/2. SquishTrade on 3/29 said that price may follow through to 404-405, or even possibly 410 later on if levels held. Here is the chart from that 3/29 update showing the 2/2 VWAP breakout (light blue line):

Then price began to break above the smaller embedded triangle. Here is the smaller triangle in an update from 3/29 as price was starting to break above it, signaling a potential break out / trend move.

Now, price has reached the $404 level. As noted, nothing has changed as to the intermediate-term / long-term views, which remain uncertain due to the ranging / sideways action in SPX. But in the short-term, price can still move up to $410.

At this point, given that price is contending with a key .618 retracement at 403.92, price may pull back and consolidate before reaching $410. Much may depend on market's reaction to PCE inflation print on 3/31.

Note

After a great deal of thinking about markets the last few hours, I'm less confident about any kind of upside past the 407-410 (4100) SPY range. It could happen, but it also could reverse on a bit of ill-timed news, like a hot PCE print or some other data drop. Let's see. The problem now is that SPX is now approaching major resistance. The VWAP from the all-time high is at 407-408. The parallel channel from 3/13 lows have channel resistance at 407 as well. And VIX is right near long-term TL support.
It will be important to watch FF rate futures as well as VIX and SPX and NDX.
April could see some bullish movement based on seasonality, but price can overcome seasonality. Seasonality is an average and doesn't preclude outliers, which happen without affecting the average.
It's just less clear to me that this is a BTD situation back to 4200-4300. It's tricky for sure. Trade safely!

Note

And now SPY has reached 407.20. It's right up against the VWAP from the all-time high. I would expect this to be some resistance.

The chart also shows SPY is up against channel resistance. A pullback shouldn't be surprising here despite April seasonality being bullish.

Note

Price pushed a bit above a 1.618 projection of a
first wave off a swing low from March 24. It's been strong today. But right at channel resistance, a major VWAP from 1/4/22, and a 1.618 projection / extension could be where it reverses for short-term consolidation (at a minimum). SquishTrade may try a small short on SPY into next week from 410 to the 402-404 range.

Note

The small short mentioned in the 3/31 update has been closed. Price hit a high of 411.91 today then fell back to a low near 407. Now it's unclear whether price can push for another leg higher again to retag the channel and create more bearish divergence. A few charts may follow today time permitting.

Note

The larger triangle formation still remains valid and unbroken. In the original post, ST mentioned that a decisive break of the smaller triangle would likely lead to a break of the larger one. The larger one is the one shown in dark blue (the smaller one is on the original chart above, and that was broken last week).

Today, the pullback found firm support at the anchored VWAP from the all-time high at 407.34. This does not make me wildly bullish though. Look at the prior break above the anchored VWAP from the all-time high back in early February 2023. That break above lasted about 10 trading sessions. This is an area of interest only, and the fact that support was found at this level today means that prices could remain supported to somewhat higher in the coming few days only. One bad data drop though could send it back below. Risk management is key. Some of these points are being made to remind myself, so apologies if this sounds like a broken record.

Note

Lastly, note that price found resistance today right at a key level, 411.74. This was a projection of the first move off the lows from a key swing low—the start of the second move. In other words, measure starting from the swing low on 3/13 up to the high on 3/22, then project that distance from the low of the pullback after that first move to find where the moves show equality or a 1.272 relationship. The chart immediately below has an arrow showing the blue line where the 1.00 level lies.

The 1.00 projection (equality) is at 411.74. Interesting how this was right at the high of the day.

The larger triangle coincides with the zone b/w the 1.00 and 1.272 projection of this measured move concept. This comes in at 413 or so.

All the data seems to suggest that higher prices can occur into the coming days / weeks. However, one must be cautious as always of a whipsaw / false break above the key levels, and the 2000-2002 bear market serves as a good reminder of this.

Lastly, here is one additional *short-term* chart to consider. Sometimes, pullbacks within a trend move can be symmetrical.

Here the prior pullback within this trending move shows equality with the current pullback at approximately 406-407. This doesn't mean price will stop, it just means that this is an added level of potential support. And when the term "trend" is used here, it means a short-term trend from the recent swing lows on 3/13, and this is not intended to mischaracterize an intermediate or larger degree trend at all. (As mentioned in the main post above, the primary trend over the past six months has been neutral and the best trades have been from one edge of the range to the other. Weekly Ichimoku cloud charts suggest, however, that the bear market is not yet finished, and the yield curves should make itching bulls more cautious and patient!)

Note

Price is holding above the symmetry projection at 406.51. But very little about today's price action inspires confidence. The lower edge of the parallel channel discussed in prior updates is around 401-402 (4025 SPX) If price doesn't find support soon, that is the next logical destination.

Note

Yield curve 6 months ago (October 5, 2022 in blue) and currently (April 5, 2023):
ustreasuryyieldcurve.com/b/82PhCR

Note

Final note before Monday's cash session: The expected move based on the options market is about +/- 7.63 points, which is about 75 points on the SPX. The 1-standard deviation range based on 16-delta puts and calls is expected at *approximately* 400 - 417 (416.50).

Note

There are too many charts to copy here to show how many negative (or bearish) momentum divergences exist. And these divergences are arising right when SPX / SPY is at major resistance . SPX is just above the edge of the triangle's top downward line, but with the divergences, the conditions are ripe for at least a pullback. If the pullback makes a higher low and holds support in the 400 - 405 range, then we may see yet another marginal high into May. These are my thoughts, not a crystal ball. Please do your own work and see whether you're seeing the same after doing analysis with your system.

ES 4 hr -- bearish divergence
ES daily -- small bearish divergence (nothing to write home about)

AAPL daily -- Significant daily bearish triple divergence. This one is the big one that could be a problem even if earnings do well in the days ahead. AAPL is also right at a major down TL from the all-time high. At a minimum, AAPL may need to pullback before one more test of the line, or even a whipsaw above and back below.

META -- significant triple bearish divergence on the daily chart

SPX / SPY -- no daily bearish divergence yet, but that could easily occur with a marginal new high above Feb 2. But SPX / SPY have divergences on many of the intraday time frames all the way up to the 4 hour -- the 4 hour has a triple negative divergence. Ichimoku Weekly cloud still major resistance around 414-416 (4150-4160 SPX)

Note

SPX / SPY now has official formed a failed breakout above the triangle shown on the primary chart (originally published late March 2023). The triangle's upper bound now = significant resistance again.
The 4000 SPX / 400 SPY area is important support. It's not wise under many trading approaches to short at lows with leverage after a 2-day down move unless shorting a really major support break. Often (not always) better entries present. Price action is still messy on intraday timeframes. Let's see what happens.

SquishTrade

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