The medium-term and short-term trends are both considered down at this point. SPY broke below its late November support zone with the biggest decline since early last year. After a selling climax of sorts on Friday, the ETF bounced back above 107 on Tuesday. This bounce was, however, an indecisive bounce. There was no follow through on Monday and a spinning top candlestick formed on Tuesday. These feature a small body with long upper and lower shadows. There was a strong open, a push up, a push down and a close near the open. Despite a modest gain on the day, SPY had little to show from open to close.
While most consider Friday's price action as some sort of reversal day, I think the reversal was a few hours short. SPY was trading below 105.25 at 3PM on Friday and then suddenly shot to 106.5 with a 15-minute surge. The majority of this "reversal" occurred in just 15 minutes and there was no follow through in the final 45 minutes. In my humble opinion, a solid reversal day or selling climax involves an early reversal with more sustained buying pressure. We should see a sharp surge followed by strong buying pressure that lasts more than an hour. A good majority of the late Friday reversal was probably just short-covering, profit taking and position squaring before the weekend.
On the 60-minute chart, SPY remains within a falling price channel with resistance in the 108-109 area. The bounce over the last three days formed a rising wedge. Oversold bounces sometimes last 1-3 days, which means this bounce could be nearing its end. Watch wedge support for a break that could signal a continuation lower.
All eyes seem to be on Europe. Concerns with Greece and the Eurozone spooked the markets last week. The Euro firmed and Greek bonds bounced on Monday to relieve some of these fears. There is a European Union summit in Brussels on Thursday. EU leaders will seek to calm the markets with some sort of plan or jaw-boning. This may buy time for the short-run, but I do not think it will fix the underlying problem. Predicting the news and the reaction to the news is difficult. Having added that disclaimer, the Euro could get an oversold bounce if EU leaders successfully reassure the markets. This in turn could produce a bounce in equities, gold and oil. I will keep this fundamental stuff in the back of my brain and the charts at the front.
Looking ahead, earnings season remains in full gear with some 300 companies scheduled to report this week. Economically, the docket is pretty light the first three days. Initial Claims will be reported on Thursday before the open. Retail sales will be the biggie on Thursday, also before the open (8:30AM). Once again, it looks like Thursday could be the big week, especially for retail and the consumer discretionary sector. Michigan Sentiment closes out the week on Friday around 10AM.
Charts of interest
On the 60-minute chart, SPY remains within a falling price channel with resistance in the 108-109 area. The bounce over the last three days formed a rising wedge. Oversold bounces sometimes last 1-3 days, which means this bounce could be nearing its end. Watch wedge support for a break that could signal a continuation lower.
All eyes seem to be on Europe. Concerns with Greece and the Eurozone spooked the markets last week. The Euro firmed and Greek bonds bounced on Monday to relieve some of these fears. There is a European Union summit in Brussels on Thursday. EU leaders will seek to calm the markets with some sort of plan or jaw-boning. This may buy time for the short-run, but I do not think it will fix the underlying problem. Predicting the news and the reaction to the news is difficult. Having added that disclaimer, the Euro could get an oversold bounce if EU leaders successfully reassure the markets. This in turn could produce a bounce in equities, gold and oil. I will keep this fundamental stuff in the back of my brain and the charts at the front.
Looking ahead, earnings season remains in full gear with some 300 companies scheduled to report this week. Economically, the docket is pretty light the first three days. Initial Claims will be reported on Thursday before the open. Retail sales will be the biggie on Thursday, also before the open (8:30AM). Once again, it looks like Thursday could be the big week, especially for retail and the consumer discretionary sector. Michigan Sentiment closes out the week on Friday around 10AM.
Charts of interest
About the author:
Arthur Hill, CMT, is the Chief Technical Strategist at TrendInvestorPro.com. Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed market technician. Arthur has written articles for numerous financial publications including Barrons and Stocks & Commodities Magazine. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from the Cass Business School at City University in London.
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