A Mountain Chart Perspective

If you’ve ever looked at an oil painting and stood back to gain better perspective, sometimes taking a look at the market through a different chart layout allows you to gain perspective better than your typical candlestick or OHLC setting.  Such is the case when viewing SPX using a mountain [also known as area] chart.   

Single data chart types (bar, line, and mountain) use the closing price (or last price for intra-day) for its singular charting data point thereby removing many of severe highs and lows which can distract the eye.  In the case of SPX, each area marked where the mountain *flattened* or experienced double and triple tops,  a correction ensued.   Now one should also note our recent market action reflects a much larger/longer flattening which I believe infers a larger correction ahead and here’s why:

  1. “Smart money” sells at the top and buys at the bottom and with that being said, I believe its larger/longer size means market participants are unloading more of their long positions at this *top*
  2. I believe we’re seeing some huge short covering in USD after its long selloff and if you remember the unwinding of the carry trade last year in JPY, it wasn’t something accomplished in one week.  This pop in USD will put additional pressure on the market.
  3. Year end is only three weeks away; part of which Money Managers will be gone on vacation.

Last week I pointed out how SPY was forming a Bearish Megaphone and recommended extending out those trend lines on your chart as a type of “ceiling”.   Friday that same extended trend line held and now the Bollinger Band continues to tighten.  Volatility cometh.  God only knows I could be dead wrong and we could skyrocket up to $1500 but based on the above, I firmly believe we should be following the Money Managers; selling into any pop, NOT initiating new longs and expecting a drop.   It’s only a matter of time.

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