The market dropped yesterday but never quite made it to the 2700 level for a double bottom. It chopped there all day and then staged a late day rally into the close. It's getting tricky here as every time we see a pullback that's small, which gets bought up, it weakens the bear case. What we need (if you are a bear) is a strong up move to fill that overhead gap and exhausts the bulls. But time is the enemy here as if the bulls keep doing this "small pullback and rally" move for several more days they "could" reset the overbought charts to neutral and set themselves up for a much more powerful rally that could even take out the all time high.
So let's not get to cocky here expecting a big drop as the bulls are experts at screwing the bears. They dance back and forth many times not giving to much downside to the bears and not going up quite high enough to exhaust themselves. They know the bears are waiting at that gap fill but if they dance below for a long enough time period they will wear the bears down and then the bulls will attack.
While I'm a bear at heart I do know that we bears are out matched 80% of the time, so I won't get married to shorting this market if the bulls continue to do the dance. On a 60 minute chart (or 2, 4 and 6 hour) you can clearly see this sideways chop has formed a "handle" with the "cup part being the 4/18 high, 5/3 low and 5/14 high. If you go back and add in the 4/2 low and the 3/13 high you can make an obvious "W", which are know to form bottoms just like "V" patterns are.
So we can say that we have both a "cup and handle" forming and a "W" pattern formed already. If we were to have a fast drop then it would make a "V" pattern, or a "W V" together, and that's the opposite of the "MA" pattern that is bearish. Needless to say this is a bullish pattern forming but I'm not sure if we'll get that "V" drop (of 80-100 points) to make the "W V" pattern play out, or if all we see is the "cup and handle" pattern... which just requires a few more days of sideways "rangebound" trading to play out.
Forecasting the next move here is a flip of a coin. We are stuck in the middle, not filling that gap, and not dropping hard enough to go long at. My best guess is a little downside today but not to the 2700 level. Maybe a retest of the low yesterday or slightly higher? Bulls here should really be called vultures as they know how to hover around a zone long enough until their prey (the bears at gap fill) give up... then they attack. And with the long holiday weekend ahead of us I get the feeling the bulls and bears will be at a stalemate until the next week.