Not so fast

Been seeing quite a few posts talking about the test of the S&P lows yesterday pointing to a “bottom” being in for this correction.  Honestly, I have no idea if we go higher from here or test those lows again, but I thought the following chart patterns were interesting.

Here’s a recent chart of S&P 500:

Which looked an awful lot like this pattern from last summer.  Notice how they both have a previous low that is tested and broken intraday  and “rejected” causing the hammer bars as the last bar of each chart.

However, the 2nd chart was from June of 06 and if we expand it a little we can see what ended up happening.  It turned out the hammer wasn’t really the bottom at all, as less then a week later the market closed below the intraday lows of that hammer.  You’ll also notice we ended up getting a double bottom spread out by about 3-4 weeks with a final hammer bar for the “real” bottom.  The similarity between the “failed” bottom and the “real” bottom make it next to impossible to predict which one we’ve just seen.

- John