SPY and SPX Price Action – No Resolution Yet About Future Market Direction

As I have noted in a previous post, S&P 500 and SPY are moving inside an up-channel most analysts have missed because they pay too much attention to low probability chart patterns like a non-standard and irregular inverse head and shoulders that in my view is a random formation. Nothing can be said about the future direction of the market yet in my opinion, as price action is more or less normal.

Before I start with this post I would like to thank Kingsley,  a blog reader from Australia, who spotted an error in my post about TLT yesterday. Specifically, I referred to the 200-day moving average in the place of the 30-day moving average. The post is now corrected. Thanks a lot, I really appreciate you taking the time to email me.

In my December 22 post I wrote about S&P 500:

After the decline during this past summer, this index has been moving in an up-channel with support at the lower trendline TLS. At the same time, a trend line resistance developed that originated at the July highs. This trendline TLR together with the 200-day simple moving average SMA(200) converge near 1,260 to set a very strong resistance level.

In the above SPY chart, the up-channel is defined by upper trendline CUTL and lower trendline C-LTL. Prices keep testing strong resistance above $126 where UTL (the trendline coming from the July high) and the 200-day moving average converge. This is the sixth time SPY prices decline and fall below the 200-day simple moving average after testing it during this month.

Price action remains normal and no resolution about future direction has taken place yet. It would be normal to see prices fall towards testing C-LTL near $123 or even below that.

Only if a violation of C-LTL takes place we may start talking about a possible downtrend in SPY and S&P 500. But then there is strong support near $120.

Thus, the moves won’t be easy in either direction. Volatility may increase and the job of trend-followers may get even harder in the next few weeks. I have warned trend-followers since last September to take a break when I posted on the blog a chart of S&P 500 and I wrote:

“Choppiness may continue for several weeks giving more troubles to trend followers. I would turn off any automated trend following system at this point. There is no point in getting caught up in a fight of this kind. This is a good market only for experienced very short-term swing traders, scalpers and option sellers. Trend followers should take a break, in my opinion, until the technical picture is clarified.”

I will update my analysis about SPY and S&P 500 next week.

Disclosure: No positions in S&P 500, SPY or related products at this time.

Disclaimer:The author is not a financial advisor and does not recommend the purchase of any security or advise on the suitability of any trade or investment in any timeframe. ETF, stock, futures, forex and options trading and investing involves substantial financial risks and can result in total loss of capital. If investment or other professional advice is required, a licensed professional should be consulted.

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