The $SPY Chart Enters the Bounce Zone

  1. $SPY is currently in a correction after falling over 10% from all time highs.
  2. The 5 day EMA has been the end of day resistance for all of 2016 as $SPY has been in a strong short term downtrend.
  3. On Friday the $SPY bounced near a triple bottom support line.
  4. Friday’s candlestick was a bullish spinning top off this support level.
  5. $SPY had a bearish death cross on Friday as the 50 day SMA crossed under the 200 day SMA.
  6. Thursday and Friday both closed higher than the open giving some sign of buyers intra-day.
  7. $SPY is back over a 30 RSI with a 31.47 RSI giving better odds for short term support.
  8. Volume continues to be higher on down days than up days.
  9. Even in downtrends, markets do not go straight down. Price tends to bounce back to short term resistance as shorts cover their positions and swing traders try to buy the dip.
  10. The $NYMO is at -78.85 which is near the historical bounce zone.

I put the odds on a short term bounce here with the extreme bearishness of investor surveys, how oversold the market is, and the high level of put open interest. We are in a long term downtrend and we may end up down over 20% from the top in coming weeks. However traders make money in bear markets by selling short strength at key resistance levels not buying into price zones with a high probability of bouncing.

Disclaimer: I bought $SPXL at the close on Friday and will be selling into any potential bounce next week. My end of day stop is if $SPY loses the Friday low of day.