Short term traders are getting a bit whipsawed this week. First there was a break out above the multi-month downtrend line. This was then followed by a breakdown in the upward trend line. So what should traders be looking at?
In times like this, I like to remember the “3 day away rule” that is mentioned in Edward-Magee’s book Technical Analysis of Stock Trends, where we wait for confirmation of the pattern.
In addition, I find that looking at point and figure charts helps eliminate some of the short term market “noise” and gives a better long term picture of the current trend:
While the short-term pattern has been disrupted, the mid-term pattern is still trending upward. If the SPX trades below 1310, we will some bigger fireworks in the market.