SPX Breaks Higher But Rally Is Showing Weakness

The SPY closed above Tuesday’s highs which were made during the rally after the Fed minutes. This is a key level for the market as it is now above that 700 point reversal and has a chance to rebound. However, today’s action was extremely weak considering the 6 point rally in the S&P as the market gapped higher on lower than average volume and failed to sustain the highs of the day. For this reason, I have sold F, HBC, and C as the market may yet again flush out weak hands and make yet another move lower.

The SPY is currently set up for an evening star reversal and I think that there is a high probability that we’ll see a gap down on Monday followed by slightly more downside on Tuesday. However, it is very important to keep in mind that I do not believe we’ll make a new low, though if we do, the market essentially goes back to sqaure one and may not bounce again until it reaches 1000 on the SPX. Remember what I mentioned in the most recent video analysis, the institutions will fake out amatuers with moves and by promoting media hype. I successfully called confirmation of Tuesday’s bottom when I saw the market plunge on Wednesday but not make a new low. If the SPY does not close positive on Monday, then today’s action is still not confirmed and the market will likely consolidate further before fully rebounding.

One big positive for the market is the weekly chart. There is a blatantly obvious bottoming tail on the weekly chart of the SPX and this week’s action should lead into a rebound. However, often times a bottoming tail is followed by another down day that does not make a new low. Case and point, the daily chart of TBT over the past week.

Ultimately, I think we’ll see some consolidation next week that most will mistake for another selloff and will miss out on being long for the rally that will follow. I think the best course of action is to wait in cash here and look for longs should the market pullback next week but fail to make new lows.

As stated earlier, I have liquidated my longs however I still maintain my position in TBT as it is one of the strongest chart patterns in the market. Again I hear news of treasuries “surging” yet an accomplished market technician will tell you that this is simply the beginning of an inside bar pullback on the daily chart of TBT. TBT is holding up well and after consolidating it should shoot higher to $29.

As a side note, above I mentioned how bottoming tails are typically followed by another down day that does not make a new low and cited TBT as an example. Note how on Monday the tail made on the chart was large as the ETF closed back near the highs. Then the following day it sold off again but stayed within the tail made on the previous day. For this reason I opened my TBT long since the news was pumping the upside in bonds and the downside in equities yet the charts were failing to make new lows or highs respectively.

Be smart, the market is still volatile. I am mostly in cash outside of TBT and though I do believe we’ll see some selling Monday, I probably won’t look for shorts in the market. Instead, I’ll most likely be looking for long opportunities on any consolidation next week.

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About Aaron Basile
Market Technician, Equity/Commodity Trader, Austrian Economist, Contrarian Investor

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