7/15/2012 SPY #13

S&P 500 Cash Equity (SPY)

(Daily)

-          Not many changes on this chart since the SPY moved as I expected 2 weeks ago, filling the 2^nd gap @ $132.99 - $134.85 (better shown in the hourly chart), and making a higher high (P3) and higher low (V3) within the upward channel. From my experience, trend lines connecting tops/bottoms are only reliable until the 3^rd time candlesticks touch it. The SPY made 3 peaks and 3 valleys already, so I'm expecting a move that breaks out of the channel to happen soon.  

-          The resistance level @ $135.92 was previously a double top pattern confirmation line and the same level where the 2^nd peak (P2) topped. If the SPY breaks above this level, the stock will rise to the upper bound of the channel and find the next resistance level @ $139.21. On the other hand, if the SPY can’t break the resistance level, the tradable area will get narrower and the stock has a good chance to break downward.

-          Notice the declining 50 day moving average (50 SMA, grey in color) is closing up with the 200 day moving average (200 SMA, white in color). When the 50 SMA crosses below the 200 SMA, the bearish golden cross is generated, signaling a bearish trend. Be alert when these moving averages cross and be cautious with any long trade.

-          On Friday, the SPY erased losses of last week. The rally was led by JP Morgan’s better than expected Q2 report and speculation of China will boost stimulus measures, easing concerns about earnings and the global economy. And because of these reasons, I think the SPY is very likely to continue higher in the next few days. Until the bearish cross occurs, sellers probably won’t step in due to the lack of sell signal. If a breakdown does happen, each of the prior pivot lows (V2 and V3) will serve as minor support levels. Also keep an eye on the rising 200 SMA, it always provides good support to a declining stock.    

(Hourly)

-          There is a 3^rd gap @ $135.98 - $136.72 to fill, if a candlestick closes above the 3^rd gap level @ $135.98 and opens another candlestick above it, then look for the stock to trade up to the gap fill level @ $136.72. The 2^nd gap @ $132.99 - $134.85 is a good example. When the SPY dropped below the $134.85 level on late Tuesday and opened another bar below it, the gap trade was triggered. From breaking into the gap to filling it, the trade lasted 2 days. Expect the same thing to happen, when the stock breaks the 3^rd gap level @ $135.98.

-          If the current up move is not able to reach above the prior pivot high (P3) @ $137.54 but form a peak that is lower than the P3 level instead, then one should be careful for a trend reversal. If the SPY starts to trend lower, the prior pivot low V3 @ $132.58 and V2 @ $130.88 will both serve as support levels.           

I hope this post offers you some insight, thank you for reading and please feel free to give me some feedback.