SPY-Weekly formed White Opening Marubozu, created an upper shadow. SPY-Daily chart formed Bearish Harami Pattern. Monday pull back likely.
I don't like making daily calls based on candles due to low % accuracy, however, went out on a limb this time and below is the Daily chart showing the pattern.
Effective charting requires multiple looks at the same stock or etf, without getting analysis paralysis. It's prudent to compare the stock or etf you are charting against the most bullish stocks. One of the best winners, no matter bull or bear market, is IBM.
Here is IBM in candles, over layed with S&P 100 (black line), over last 6 months. Notice the double bottom in IBM August-September, followed by Inverted Head n Shoulder bottom $SPX. IBM, the most bullish of all stocks, leads the way for the broader index.
IBM 3-month chart shows a clear Head n Shoulders topping pattern. In a bull market, we would expect this pattern to fail; not so in a bear market.
Here is a BIG RED FLAG notice to bulls, showing the divergence of late between IBM and S&P.
Here we do a common charting technique by dividing IBM/SPY to dig even further under the hood for clues. This chart also has a 100 day EMA line included in red. This chart really brings the BIG PICTURE into focus.
Notice every time this division reaches the 100 EMA, its been buy time; both 2010 and 2011. However, notice in 2012, a massive Bear Diamond Distribution Pattern has formed, unlike years past.
Conclusion: The stage is set for a WAVE 3 down to begin soon; given the extreme bullish sentiment and the most bullish of bull stocks IBM setting up for a breakdown. I expect the action/reaction dynamics to kick once the Head-n-Shoulders IBM pattern breaks the neckline. This will bring in a short trap, and give us the final S&P push to new highs for 2012.
Tim Kathlina
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