SPY fails at resistance zone

On the daily chart, the S&P 500 ETF (SPY) traded up to its big resistance zone last Tuesday, stalled for two days and then moved sharply lower. Tuesday's gap was filled with a long red candlestick. Another lower high is taking shape with key resistance now set at 110. The falling wedge still dominates the chart to define the overall downtrend. Barring a recovery and break above 110, a move below the early July low is expected. RSI met resistance in the 50-60 zone for the third time since May and moved back below 50 last week. Momentum remains bearish to confirm the downtrend in SPY.

On the 30-minute chart, SPY broke support at 108 with a sharp decline that never looked back. We did not see a rebound after the weak open or even a late surge. With this decline, SPY also filled the gap and broke the lower trendline of Andrew's Pitchfork. Broken support at 108 turns into the first resistance area to watch because there is sometimes a throwback bounce after becoming short-term oversold. Key resistance is set at 110. The indicator window shows RSI breaking below 40 to turn short-term momentum bearish. This support break coincided with the support break at 108.



Key Economic Reports:
   
Tue - Jul 20 - 08:30 - Housing Starts        
Wed - Jul 21 - 10:00 - Bernanke Testifies before Senate   
Wed - Jul 21 - 10:30 - Crude Inventories
Thu - Jul 22 - 08:30 - Initial Claims
Thu - Jul 22 - 09:30 - Bernanke Testifies before House
Thu - Jul 22 - 10:00 - Existing Home Sales    
Thu - Jul 22 - 10:00 - Leading Indicators    
   
Charts of Interest: None today.

This commentary and charts-of-interest are designed to stimulate thinking. This analysis is not a recommendation to buy, sell, hold or sell short any security (stock ETF or otherwise). We all need to think for ourselves when it comes to trading our own accounts. First, it is the only way to really learn. Second, we are the only ones responsible for our decisions. Think of these charts as food for further analysis. Before making a trade, it is important to have a plan. Plan the trade and trade the plan. Among other things, this includes setting a trigger level, a target area and a stop-loss level. It is also important to plan for three possible price movements: advance, decline or sideways. Have a plan for all three scenarios BEFORE making the trade. Consider possible holding times. And finally, look at overall market conditions and sector/industry performance.