S&P 500: First Down, Then Up 110 Points -" What Such a V-Pattern Recovery Means

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According to the law of reflection, the angle of incidence is equal to the angle of reflection.

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Apparently the law of reflection also applies to stocks.

The S&P 500 chart below shows a near-perfect V-shaped pattern.

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Is this V-pattern bullish or bearish for the S&P 500 (^GSPC)?

If you are looking for V-patterns or V-formations in your technical analysis handbook, you probably won’t find anything.

Unlike a head-and shoulders or triangle pattern, there are no odds, measured targets, or trigger levels for V-formations.

But there are past precedents. The S&P 500 chart below highlights prior V-pattern sightings.

Over the last three and a half years there’ve been about 14 V-formations, with an average top to bottom range of about 90 points.

Since we’ve enjoyed a wonderfully manipulated bull-market, most V-patterns obviously turned out to be longer-term bullish.

However, as highlighted by the red boxes, the completion of the V’s right rim has often been met with at least temporary selling.

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The February 5 Profit Radar Report expected a strong V shaped rally when it published the chart below and stated that: "Selling pressure is subsiding. The potential for a roaring rally exists."

View enlarged S&P 500 projection here

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As in the past, the upper edge of the V is acting as resistance for the S&P 500 (SPY).

A projection of what's next (for the next couple weeks and for the entire year 2014) was published in the most recent Profit Radar Report

Although indicators have turned wildely bullish and suggest higher prices, there are three indicators that refuse to budge and continue to be bearish. More here: 3 Bearish Indicators Buck the Avalanche of Bullish Signals

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

 



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