After becoming oversold with last week's decline, SPY firmed over the last three days and established some support around 109. There was an inside day on Monday, a failed rally candlestick on Tuesday and a strong close candlestick on Wednesday. Obviously, the strong close candlestick is the opposite of the failed rally candlestick. SPY hit 108.33 on the low, but closed at 109.83, which is near its high. The ability to bounce and close near the high shows an increase in buying pressure. Again, the medium-term trend remains up. Even though last week's sharp decline looks ominous, it is so far not much different from the September or October declines. These were short-sharp affairs. It would take another sharp decline (second shoe drop) to affect the medium-term uptrend.
On the 60-minute chart, SPY broke below 109 in early trading, but rebounded in the afternoon and closed near 110. The medium-term uptrend and short-term oversold conditions weighed more than yesterday's short-term support break at 109. A little follow though above 110.5 would put SPY on the route to rebound. Such a move would break resistance from this week's high and the trendline extending down from last week's high. Should a bounce materialize, we can use the Fibonacci Retracements Tool to estimate initial targets. A 50% retracement would target a move to around 112.3 and there is resistance from broken support around 113.3.
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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