Index Option Trader

Double Bottom SPY - Possible Bounce?

With the recent lift, albeit possibly temporary, there is no doubt that the SPY is in fact forming a classic double bottom pattern. According to technical analysis, a double bottom is usually indicative of a lift, with the target price being at the distance between the top and bottom of the swing high and the double bottom, to the upside. The chart below shows the setup:

While we know that this setup seems unlikely to play out as problems with “insert favorite economic doomsday scenario here” are still on investors minds. BUT.. but we may get some type of lift in the coming weeks, as the Fed will be making big moves at the monster truck rally on the 18th. Whether or not these cuts have been priced in, as I stated before, is still unclear. S&P came out saying today that the “END IS IN SIGHT!” in terms of the sub prime crisis. Whether or not that is true, there are many more global economic implications of the write-downs and fallout, so whoop-de-do. If the broad markets get a lift and some buyers decide to step in, SPY, along with most of the broad market will face some very heavy resistance on the way up, primarily the downtrend lines and moving averages. The chart above is a textbook hypothetical of what may happen, but we shall see.