$SPY in Wedge Pullback

• John Lee
• July 29th, 2010

As expected, the market is pulling back.  The question now is the duration of the pullback. We are currently seeing a descending wedge, which is textbook bullish. The condition for a successful execution of this wedge is a move that either gaps above or breaks above the upper segment of the wedge. This is pretty much why paying attention to the pre-market session is so important (right up until the open). Since it’s still early Thursday morning, we’ll have to see if this condition is met. Support levels are marked in green and resistance levels are marked in blue.

The pullback is also on lower volume which is indicative of a healthy consolidation. We are currently seeing no indication of a massive breakdown or huge selling pressure.

On the 10-day chart, 110 is marked as major support with 110.50 being shorter-term supportive. Again, the wedge marked above must be paid attention to during the day for any signs of pressure build-up.

On the 3-mo/60-min, we can see a rising wedge on the intermediate-term time frame. The area marked from 110-110.50 is again marked for it’s significance. In the case where we break out of the wedge, the  red resistance level comes into play and should also be under consideration.

Overall, we are still in consolidation as the $SPY remains stock between moving averages. The 100-day and 200-day Ma are both basically flat further indicating that we are in a neutral, range-bound market.

Tomorrow’s economic reports should have an impact, therefore any planned overniht holdings should take them into consideration.

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