Rising Wedge Pattern

Chart patterns are repeating patterns in market price action. The SPY is an ETF that tracts the price performance of the S&P 500 and trades at approximately 1/10 the S&P500 cash market. There is a pattern that seems to be developing in the SPY that could signal a further price movement to the downside. The chart pattern is known as a rising wedge formation and it is a bearish pattern in an established downtrend. In general the pattern looks like this:As can be seen from the chart of SPY below this looks like what we are seeing now. If the bottom support line is broken this could signal the beginning of a continued move to the downside and a testing of the July lows. This would then be a good entry signal to go short the SPY or buy a put option. I would also expect gold to rally.

If however, should prices break the top line of this wedge I believe the market could go on to the 50% retracement area of the May-July down trend move which would be at the $132 area on the SPY(equivalent to 1320 on the S&P500). The next resistance level above that would be $134.59which would be the 61.8% retracement. See HERE for more detailed analysis. Click on chart to enlarge.