Week of 1/21/2024 for SPX ES SPY

Will the Breakout Sustain?

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RECAP:

The subtitle of last week’s post was “Time to Breakout?” and we certainly did on Friday. From last week’s commentary:

The path of the week was lower first, which is another example of “sometimes testing lower first is bullish.” We have made note of the near exhaustion of buyers for a number of weeks as we had continually failed the top of the range so trading lower first to recruit stronger buyers to complete the upside break is no real surprise. We did this 2 weeks in a row. If you missed last weekend’s explanation of this concept I’ve included a portion of it below:

The index made a perfect back test of the bottom of the balance range, which formed an inverse head and shoulders pattern. This is an example of how technical analysis and balance range principles align. The neckline forms at the top of the balance, each shoulder at the bottom of the balance, and the head is the false breakdown below the balance. I proposed 4745-4830 as a prospective balance range on 12/20. The extremes ended up a few handles wider.

All that matters for this week is whether or not this breakout is sustained. In this week’s post we will discuss what a failed breakout would look like, along with some potential traps that might look like failed breakouts. Here is a non-paywalled post I did this weekend covering a number of markets from a high level. Markets Overview