S&P500 – Rising Wedge & Next Cycle Time Window



S&P500 Strategy Update

New Record Highs & Quarterly Results

The S&P500 closed the week at record highs @ 2459, approaching long term resistance of the rising wedge and surpassing the High that was formed mid June @ 2450. This week, the quarterly results will start so that should provide several interesting trading opportunities. During the week, I will share my Trading Updates of Bitcoin, Oil, Gold. Silver, the US Markets and the DAX here so feel free to check in and see if there’s new content uploaded.

In this update, I want to spend some time discussing the Rising Wedge pattern of the S&P500 that is in play since Q1 2016.

Rising Wedge

The Rising Wedge is a bearish pattern that begins wide at the bottom and contracts as prices move higher and the trading range narrows. As a continuation pattern, the rising wedge will still slope up, but the slope will be against the prevailing downtrend. As a reversal pattern, the rising wedge will slope up and with the prevailing trend. Regardless of the type (reversal or continuation), rising wedges are bearish.

As usual with wedges, the space to move becomes smaller and smaller as time passes by. The rising wedge can be one of the most difficult chart patterns to accurately recognize and trade. While it is a consolidation formation, the loss of upside momentum on each successive high gives the pattern its bearish bias. However, the series of Higher Highs and Higher Lows keeps the trend inherently bullish. The final break of support (for this week at 2430) indicates that the forces of supply have finally won out and lower prices are likely.  Obviously, not there yet. The rising wedge is explained here in further detail.


Rising Wedge since Q1 2016

The 1st chart, in which the trend lines were drawn very tight. Resistance at 2465 for this week.

The 2nd chart is zoomed in on the Rising Wedge, but in this chart I set the upper trend line to the max possible (as in, barely touch the Highs of 2016 and 2017, red ellipses).

This changes the upper trend line to 2530 as target/resistance for this week. Support for this week is at 2420-27.

The 3rd chart has the upper trend line at 2488. At the end of this post, I’ll show you a 3rd version of the wedge, in which the upper trend line is at 2465. All three are valid, they just differentiate in how tight I draw the lines. The reason I show this, is that it’s very difficult to say where resistance will actually be met. It could be 2465 (chart 4 below), 2488 (3rd chart) or even 2530 (2nd chart). So keep that in mind, optimists will see 2530 as target, bearish traders hope for 2465 to stop this uptrend. Anything is possible and they all seem valid to me. 

So based on the Rising Wedge: resistance at 2465-2530 and support @ 2420-30. The key thing to wait for with a rising wedge, is a break of support (for this week at 2430) and a possible re-test of previous support.


Let’s continue this analysis with some indicators such as the Pattern of Price, RSI and the CM Indicator.

Pattern of Price (bullish)

Higher Highs (2464) and Higher Lows (2400), so clearly still in an uptrend. This pattern changes when the 2400 breaks to the downside or a Lower Low < 2464 is formed.

S&P500 Cycle Model 

The next upcoming 35 and 70 day cycle window is scheduled for July 17-23. This could signal that a short term High will be formed this week. For more information about the S&P500 Cycle Model and a free download of the Full Report for July 2017 (short and medium term cycle dates), click here.

CM Indicator & 14 day RSI (bearish)

The CM indicator is perfect for spotting lows (when volatility of the asset spikes). Currently, this indicator is close to breaking the black, horizontal line to the upside and that signals that the odds that a short term High will be formed, increases.

The 14 day RSI is facing resistance from the downwards sloping trend line and it is showing Bearish Divergence, indicative of a sideways (correction in time) or downside wave to unfold.

Scenario Analysis

I made three scenarios, see  the 4th chart below, that seem most likely to me based on previous price patterns and Cycle Time Windows.

The last 4 times that the S&P500 topped inside the Cycle Time Windows (blue areas)  it was followed twice by a quick sell off and recovery, a V shaped pattern (purple projection). The other two times, it formed a slow abc down (orange projection) into support of the wedge channel. The first two scenarios assume a very narrow range till August: 2430-90 = 60 points. Patience is needed to play this one (if you’re a bear). If you’re a bull, then it might be a smart idea to cash out some profits above 2465, or set the stop loss just below the support line of the wedge (2430).

The third scenario was my main scenario, a Low to be formed during the next Cycle Time Window of August, a major cycle cluster as it represents the 35, 70 and 140 day cycle (5, 10 and 20 week cycle). The more time passes by, the more unlikely this scenario becomes to me. Maybe that’s a good thing as often the unexpected happens.


S&P500 Daily Chart (4th chart)

In this chart I drew the upper trend line as tight as possible, so the upper resistance is at 2465-72 for this week. Support at 2420-30.

Based on my own developed Cyclical Model, the next Cycle Time Window is scheduled for July 17-23, so I expect a High for this week, in the 2465-2530 area (I know, a wide range, but I explained above the reason why).


 Conclusion & Strategy

The main trend is still up as long as 2430 holds at the close. Therefore, the highest odds of trading profitable is on the buy side as long as the S&P500 is able to stay above 2430 (support wedge).

Short term, there could be an interesting opportunity to sell the 2465-88 area during the next Cycle Time Window of July 17-23 for a retest of support @ 2430.

For the medium term, buying the dip should still be the main strategy, as long as the pattern of Higher Highs and Higher Lows continues and the wedge stays intact. If it breaks out to the downside, selling the rips is the strategy to follow. If you want to check my CFD Trades and Positions, then please click here.

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