As we open this Monday we have a bullish and a bearish pattern in the S&P 500 index. On Friday we had a nice breakout up through the down trendline in the SP500.

Not only did this breakout close on the daily and weekly chart but it also occurred on higher volume giving it more validity.  This argues that we have more upside in the near term.  However, the SP500 has also traced out what appears to be a complete rising wedge (or ending diagonal) .

This argues for a downward correction short term. It will interesting to see which pattern prevails short term.  Ending diagonals break down about 80% of the time and quickly retrace to the start of the pattern which for this pattern is around 770, however, 20% of the time they break out to the upside of the ending diagonal.  Although rare, if they break out to the upside they can have a very powerful up move.

It will be interesting to see which pattern prevails short term.  Personally, I tend to favor the correction a bit more than a continued upside move just because the market is very overbought.