The S&P 500 ETF (SPY) opened with a huge gap down, but rallied after this gap to form a long white candlestick. Notice that the ETF opened in the 38-50% retracement zone and closed above the 38% retracement mark. This move reinforces the 128 area as the first support zone. The Commodity Channel Index (CCI) moved below -200, which was its lowest reading since the May 6th flash-crash. This is truly oversold. Despite oversold conditions, retracement support and a long white candlestick, stocks have suffered some technical damage and a little repair is needed. This healing process often comes in the form of a consolidation or support test over the next few days, perhaps weeks.
On the 60-minute chart, last week's gap down and broken supports turn into a resistance zone in the 130.5-131.5 area. I would actually be surprised to see a bounce all the way back to this zone. At this point, the bulk of the evidence remains bearish and I will wait for the key indicators to reverse before considering a short-term bullish stance. RSI on the 60-minute chart broke below 35 on 22-Feb and needs to clear 65 to turn bullish again. The 10-day SMAs for Net Advances and Net Advancing Volume moved below -100 and need to break above +100 to turn breadth bullish. SPY needs to establish support and break some sort of resistance level to turn the price chart bullish again.
Key Economic Reports/Events:
Wed - Mar 16 - 07:00 - MBA Mortgage Index
Wed - Mar 16 - 08:30 - Housing Starts & Building Permits
Wed - Mar 16 - 08:30 - PPI
Wed - Mar 16 - 10:30 - Oil Inventories
Thu - Mar 17 - 08:30 - Jobless Claims
Thu - Mar 17 - 08:30 - CPI
Thu - Mar 17 - 09:15 - Industrial Production
Thu - Mar 17 - 10:00 - Leading Indicators
Thu - Mar 17 - 10:00 - Philadelphia Fed
Thu – Mar 17 – 18:00 – St Patrick's Day Evening!
Charts of Interest: Tuesday and Thursday in separate post.
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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.
