Market Update for Wednesday, July 12th, 2023 - [Archived]

Good afternoon, traders.

The S&P 500 has been trying to break out of this bull flag, and until today, it repeatedly failed to do so:

With the positive reaction to the lower-than-expected CPI, we gapped up and and then even closed over all these prior highs. And that’s all very initially bullish.

Another important technical is this long-term trend line, which I last discussed here in a weekend article:

Today’s gap allowed us to gap over it. If this is maintained, it’s a good sign for the bulls.

That said, it has to persist and so I’m not inclined to accept anything until we see whether we lose it again just as fast as we recaptured it, which we can do. Fakeouts are a thing, after all.

Regular readers of mine will know that I am fond of examining potential patterns of distribution and accumulation. And those are better examined using horizontal rather than slanting rails. And so while we’re way above the bull flag upper rail, as a proposed pattern of distribution, we’ve only poked out of the range:

And a common feature of patterns of distribution is an “Upthrust After Distribution,” and they look just about like this looks. They’re stop hunting raids designed to clear shorts before a downtrend commences. And so we will need to wait to see if this collapses. If it does, then this is a UTAD and especially if we gap down, we can lose that long-term trend line on SPX just as fast as we got it.

Now, I tried looking for a pattern of distribution in May, as that was an appropriate place for the market to top, and we poked out the top there but then kept going up. We can do that here, too. But, the last one not working doesn’t say anything about this one working or not, and it’s important to wait and see.

Yesterday, I had some contraction in price that I thought I could use for a “B-Wave.” I think I can still use a similar idea today, but using a larger contraction, like this:

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Now, if I’m completely wrong, I think I’m going to find out about that primarily from the Dow. It’s done nothing since last year, and if the market is genuinely interested in being very bullish, I think its big inverse will play out.

Here’s the pattern:

In addition to the inverse, it’s now got this contraction that tried to break out today. I remain very skeptical of this pattern. I smell trap written all over this. And I still think there is a good chance it will fail. We have rallied above the neckline over here 3 times. And the first two times were rejected. This third time can simply be rejected as well. It’s already rejected the attempt to break out of the contraction today. If we lose the neckline again that’s going to be 3 failed attempts. And that’s good and bearish.

That said, if this does break up and we persist above the neckline, it is a bullish pattern, and it targets the all-time high at least. So, I’m not going to be permanently stubborn. If a ginormous inverse on the Dow starts to run, we’re in a bullish market. But it hasn’t run, and there have been sellers here each and every time we’ve tried to break out, and I’m inclined to think the sellers are still here.

Last but not least, let’s look at Apple again:

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So, we’ll see what she does. I’m still interested in seeing if we’re topping out. A cold CPI reading can be interpreted as Fed-Dovish (which is what people want and expect here), but it can also indicate that we’re entering a recession. And so it might be very bearish that prices are falling. And if smart money sees it the latter way, then they should be selling into the froth we have here in the market.

I hope everyone has a fine evening.