A crack in the bounce

After yakking about SPY resistance in the 111 area and RSI resistance in the 50-60 area for at least a week, it finally came to pass. With a broad decline on Tuesday, SPY backed off the potential resistance zone to turn it into a confirmed resistance zone. All major indices were down 1% or more and all sectors were down with five falling over 1%. This week's high could be the first lower high since early July. The last correction occurred in June-July. SPY declined the second half of June, bounced at the end of the month and then declined below the prior low in July. It was a classic three legged decline (A down, B up and C down). Should the current decline follow the same pattern, I would expect a move below the February low and support around 102-103 (October-November lows). The blue dotted lines show a developing channel that extends to 102 by mid March. Yes, the ides of March.


On the 60-minute chart, SPY broke minor support with a sharp decline in early trading. Also notice that RSI broke below 50 to turn short-term momentum bearish. With a quick decline below 110, the ETF is already trading at support from the channel trendline. There could be a throwback towards 110.8-111 area, but I expect resistance in the 111-111.5 area to hold. Expectations are no guarantee though. Bernanke appears before the House financial services panel today and Geithner appears before the House budget panel. Either one or both could produce a few fireworks on Wall Street today.