SPY has been slowly trending downwards in a tight channels over the past few days, and this decline has picked up speed trending lower after a break of the 146.26 level. This decline has formed two technical patterns.
The first pattern is obvious and is just a simply downards channel which has guided this market lower. The bottom of the channel is more dominate with it acting as a bouncing point each time. The channel is moving the market back towards its breakout level at 144.44 which is a key area of support for the short-term. This channel has established the markets short-term trend. But the second pattern can be more telling of the future movement for the market signaling a possible reversal of the current trend.
SPY’s downward channel comes after a big run up associated with the QE announcement. The channel forming after this has formed a Bullish Flag pattern. This represents a consolidation after a big move and a break of the flag signal a break to the upside. This pattern gives the potential for the market to make another 4 point move, taking SPY to around 149-150 depending on the breakout level. This pattern is only valid if the market breaks out of 146.00, it is voided if SPY drops below 144.44 which is the breakout support level. Any failed breakout and the downward channel must be looked at continuing further.