US market View- S&P 500 following Diamond Path

US market View- S&P 500 following Diamond Path

The weekly chart of S&P 500 after sharp pullback is in the process of forming Diamond Top. For Diamond top pattern completion, we need a sharp slide in S&P 500 retracing almost 78% of recent upswing  and followed with another degree of larger rebound. Basically, the volatility should be so high that it clears out both bulls and bears in system.

Unlike traditional topping out patterns, neither bulls nor bears are in control of positions and since volatility remains fatal for market, it eventually ends up Bearish Diamond Tops.

To make sense of how volatility is playing out, we take monthly chart of CBOE VIX futures. We are seeing re-test of breakout line and it suggest that we are still into a high volatility phase.

A rebound from current levels could end up in 30-32% zone. For S&P 500, a sharp retracement could bring it back towards 2,400 before next leg of rally begins.

All this expectation is based on historical behavior of Diamond top patterns