Lower Highs - One Possible Interpretation

From middle June to the end of June, the S&P500 Index made a series of lower highs, and lower lows. The pattern can be clearly discerned on the daily candle chart of the S&P500 Index, below.

SP500 Daily Candle Chart

However, so far in July - while there are lower highs - there really aren't any lower lows. Throughout this time, price has been weaving and bobbing about the 10-day SMA closing on or near it several times (green dotted line). Today is one such day.

Any number of people, including myself, are scratching their heads looking for possible diagonal patterns lower, even though we know the Dow Jones Industrial Average, and the Dow Transports made a new all time high on July 1, confirming a Dow theory continuation signal in the bull market.

However, today I will offer a slightly different view. The low volume, algorithmic trading, may only be a sign of a triangle, as below, on the hourly chart of the S&P500 Index.

SP500 Hourly - Possible Triangle b Wave within a Larger Diagonal Downward

If the upward market movement had ended on 19 June, with the thrust to a C wave from the B wave triangle I had shown in previous blog posts, then, the first movements down may only be a, and triangle b, of what will initiate a c wave downward to start a larger diagonal, downward.

First of all, by crossing up over the a wave, the ((E)) wave of such a triangle has already potentially validated such a "running triangle". And a running triangle would be a continuation pattern lower. What would the purpose of such a triangle be? If it plays out properly, it might be to allow the Dow and the S&P to partially synchronize again, in that the Dow may only have made it's first wave lower today, since the all time high was on July 1.

Anyway, the pattern is already valid, and now it is a question of if the pattern plays out. A triangle would seem to fit with a light volume "messy" structure. And it is entirely possible, the triangle could even expand a bit if it wants.

We'll have to keep an eye on it for you, as people begin to come back from their vacations, flush with cash from the lower gasoline prices.

The main point is, we have lower highs on the daily chart. Lower daily lows would be needed to better validate that a down trend is underway.

Have a good start to your evening - vacationing or not so lucky.
TraderJoe