FractalTrader

SPY at strong resistance after a valiant rally effort

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AMEX:SPY   SPDR S&P 500 ETF TRUST
3
The rally last week was nothing short of spectacular. I'm still not ready to convert to bullish here, and there are several caution flags on the daily and weekly charts. I've illustrated at least 4 of those below.
  • While much of the Sept chop is not clear, or leaves too many count variations, what is clear is that the market traced out 5 waves up off the sept 29 low (labeled in blue). This is off a higher low, however, leaving the possibility that this is a C wave, ending a corrective move (either the whole correction, or part of it).
  • The rally ended at 61.8% retrace of the entire July - Aug move down. Landing on an important fibonacci level raises the odds of a reversal in my opinion
  • The rising weekly channel from which the market broke down in Aug and restested on 9/17 is sitting just above this area, and should provide strong resistance.
  • Similarly the falling trendline connecting the July and Aug highs should provide strong resistance. I've drawn a rectangle around these areas, which are both coming into play.

The fact that the market managed a 5 wave impulse is significant. Whether that marks the beginning, or end of a move is what I'll be watching. Should the market start to reverse next week, watching the behavior at the 50 and 61.8 retracement levels of this recent rally should provide some clues.

I'm still more bearish overall than bullish here. What I need to see next to remain bearish is strong momentum to the downside, and it needs to happen soon.

In particular, you should spend no time at all thinking about those rosy scenarios in which the market goes your way, since in those situations, there's nothing more for you to do. - William Eckhardt
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