A breakout on big breadth

On the daily chart, SPY held support around 104-105 with a gap and surge above 108. The gap and breakout are bullish as long as they hold. With SPY reversing the August downtrend and a reaction low put in, we can entertain the idea of an inverse head-and-shoulders pattern. While the June-July highs mark the next big resistance point around 113, waiting for a break above 113 to turn bullish seems a bit late to me. At the risk of looking too far ahead, a mid September breakout could even turn into a bull trap (failed breakout). I am getting ahead of myself. At this point, I will consider Wednesday's breakout bullish until there is evidence to the contrary.



The 60-minute chart confirms the breakout. I set key short-term resistance at 107.10 and SPY broke above this level in the first 30 minutes of trading. RSI broke above 60 to turn momentum bullish. Broken resistance around 107 turns into the first support zone to watch on a pullback. A strong breakout should hold and a break back below 107 would be negative. The reversal over the last eight days looks exactly the opposite of the early August reversal (blue ovals). There was a gap down, a consolidation and then a gap up to break resistance. This is certainly not a dull market.



It is one full week on the economic reporting front. The European Central Bank makes its interest rate decision and policy statement on Thursday, which will affect the Euro. Friday is the big day with ISM Services (consensus 53) and non-farm payrolls (consensus -80,000). We can basically watch the trend for these reports as the week unfolds. Better-than-expected numbers could buoy the bulls, but worse-than-expected numbers would likely bring out the sellers as chances of a double dip increase.

Key Economic Reports:
                                       
Thu - Sep 02 - 07:45 - European Central Bank Policy Statement   
Thu - Sep 02 - 08:30 - Initial Claims        
Thu - Sep 02 - 10:00 - Factory Orders   
Thu - Sep 02 - 10:00 - Pending Home Sales        
Fri - Sep 03 - 08:30 - Employment Report   
Fri - Sep 03 - 10:00 - ISM Services    

Charts of Interest: AAPL, AMZN, CEPH, FISV, ORLY







This commentary and charts-of-interest are designed to stimulate thinking. This analysis is not a recommendation to buy, sell, hold or sell short any security (stock ETF or otherwise). We all need to think for ourselves when it comes to trading our own accounts. First, it is the only way to really learn. Second, we are the only ones responsible for our decisions. Think of these charts as food for further analysis. Before making a trade, it is important to have a plan. Plan the trade and trade the plan. Among other things, this includes setting a trigger level, a target area and a stop-loss level. It is also important to plan for three possible price movements: advance, decline or sideways. Have a plan for all three scenarios BEFORE making the trade. Consider possible holding times. And finally, look at overall market conditions and sector/industry performance.