The weekly chart of the S&P 500 futures is developing a Major Bearish Reversal Pattern. The S&P 500 futures are a leading indicator and its patterns should not be ignored.
First take notice of the volume the past four weeks (blue rectangle) on the chart below, and compare that to the volume in the S&P 500 mini futures going back the past 5 years. The only time the equity market have seen weeks of low volume like this are the last two weeks of the year in December which is typical of the Holidays. What makes the volume even more glaring is in the context of the market continuing to push to new highs.
This is an omen in my book by itself, but besides that, there is the classic bearish pattern that is developing in price and volume.
The weekly chart resembles a "Bearish Rising Wedge". The rising wedge is defined by trendlines that are converging toward a point and are both rising in the same direction. The perfect wedge pattern is one where volume is diminishing inside the wedge as price moves into the final 1/3rd of the pattern toward the apex.
The proper trade signal is on a breakdown of the lower trendline support on an increase in volume. This encourages long liquidation and short traders initiating positions which is the formula for major downside price action and a reversal in trend.
What the wedge is telling us now is the market is seeing diminishing demand with rising prices. Higher prices can attract new buyers in a healthy bull market, but in the case of the classic rising wedge with diminishing volume it is a sign that higher prices are actually discouraging new buyers. I would never trust any breakouts to new highs that are not accompanied by an increase in volume.
There is the major trendline resistance of the rising wedge to contend with next week for the equity market Bulls.
(Click on chart to expand)
Any swing/position trade signals for the model portfolio of my subscription based service are shared with subscribers. Analysis of the S&P 500 futures in the intra-day time frames and daily time
frame are also shared in the daily morning updates with subscribers.
I have a post today on the Bearish pattern that is developing in the Nasdaq 100 and any signals here should be paid attention to as well. The link is here: http://scottpluschau.blogspot.com/2013/01/major-bearish-pattern-developing-in.html