SPDR S&P 500 ETF May Move Towards the April 2010 Highs

The SPDR S&P 500 ETF may have a shot at making it back up to the April 2010 highs if it can climb above key resistance late this week or early next week.  Key resistance on the SPDR S&P 500 ETF is 113.20

The pattern in the SPY since mid June is taking the shape of a cup and handle formation.  It is possible that we are about to start forming the handle by the end of this week.  The alternative scenario is that we do not form the handle at all and just power higher out of the rising wedge formation.

It would seem that this weeks employment report on Friday is going to decide the market direction.  My current take is that it will probably be bullish and lead to an upside breakout from the current pattern.  One could argue that a tight handle has already been formed starting on 7/27/2010.

The upside projection of this pattern if true is back up to the April 2010 highs.

On the weekly charts I am also seeing indications that the weekly macd wants to turn upwards for a bullish crossover, a bullish sign.

Volume on the SPY has dried up to almost nothing in recent days but it is worth mentioning that there are probably a very large amount of stop orders just above the 113.20, which if hit, could trigger a surge in upside volume (bears covering shorts and new longs jumping in speculating on new highs).

spy20100804

Despite the fact that the SPDR S&P 500 ETF has been trading in a messy trading range for several months, I have to say that the setup here is quite intriguing because we have a significant resistance level that if broken topside implies a move back to the old April 2010 highs.  If we fail here and break down into the end of this week then the first quidepost will be be support at the bottom supporting line of the rising wedge drawn in the chart above.

So it appears there are 3 possible scenarios here or battles if you will:

  1. Cup and handle breakout above the 113.20 level on a upside surge in volume implying move to April 2010 highs.
  2. A break down to the bottom supporting line of the rising wedge which is then supported again for rising prices thereafter for another shot at the 113.20 level.
  3. A break down below the bottom rising wedge support line leading to a fast bear market drop to the 102 level on the SPY.

The bears want a break down from this rising wedge.  The bulls want a break up from the wedge above 113.20.

For the bearish scenario to play out we really need to see a break down at or below 110.50 on the SPY maybe by this Friday or early next week.

Posted in Index Trading, Market Timing, Technical Analysis
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5 comments on “SPDR S&P 500 ETF May Move Towards the April 2010 Highs
  1. Geoff says:

    Tom

    Your chart sure is interesting. Since the flash crash in early May, the volume has been going down, down, down while the market has stabilized. Not sure if true and if true, what the dramatic volume decline implies. Methinks, possibly, not something real good for market bulls.

    I have been wrong many many times, but if the market stays on an even keel thru tomorrow, I would be surprised if the level of bullishness in the Aall Index this coming wkend does not get more bullish from the 40% last wkend.

    It sure would be perverse if the market was to decline now that events have theoretically been resolved, e.g. Gulf disaster, Europe stress test and rescue plan, FinReg, etcetera. With Congress on recess for next 5 wks or so, I am led to believe that markets typically take that positively.

    Nevertheless, as wrong as I may be, I am holding tight to a bearish point of view.

  2. Ayush says:

    Hi Tom ,

    What are your thoughts on AAPL and PCLN (especially with the huge big gap up after earnings today) . My questions are as follows:

    1. AAPL seems to have been in a consolidation range lately even though the broader market seems to have rallied. AAPL has stalled since their positive earnings announcement and I am wondering what you make of this as a trade in the short term (1-2 weeks) .

    2. Do you think PCLN would be a good short candidate in a few days in order to retrace the huge gap up ? It seems like everytime they beat earnings and gap up , the stock trades in a tight range for a couple of weeks and then a 30-50% retracement prior the gap up . How do you think PCLN should be traded in the near term ?

    Thanks for all your hard work !!

  3. Tom Tom says:

    Hey Ayush,

    I just looked at the chart of PCLN and it is indeed a huge gap. It reminds me of the huge gap up on AMZN which I suggest you take a look at because sometimes gaps do not get filled right away especially in very high powered celebrity type stocks with massive earnings. But PCLN probably will pull back a little bit as there is a supporting shelf in the 260 range. If I was going to short it would do so with a quick trigger finger and not look for anything more than a drop to 260 range. Also notable of AMZN is that after its gap up it had a second day follow through up. Not sure if PCLN is going to do that. As far as how PCLN should be traded, I would say look at the intra day charts and the volume and the ability of PCLN to hit a new price high today. Maybe I will do a little write up on it later today.

    AAPL could be a good short candidate, but it is very risky because it remains in this long trading range as you indicate. There may be an MACD histogram sell signal coming soon. The best trade with AAPL is after it has decided which side of the trading range it wants to break out from. Once it does that then it should trend quite strongly which would make for easier trend following. Problem is now it can whipsaw a lot in the middle of this range and make it very tricky for exact timing. I suppose it is a day trade or multi day trade within this range but still very tricky. Maybe I will do a write up on AAPL as well.

  4. Tom Tom says:

    Hey Geoff,

    I am trying to come up with some other bearish scenarios but at the moment they are not coming to mind. Maybe that is a contrary indication. The more I think about this market the more I realize it really is a manipulated game. The administration wants to keep this market higher before the November elections. God forbid the market declines into November. They just will not allow it. The politicians and the banks and wall street are one and the same. They all work together.

    The low volume does seem to suggest that nothing definitive is going to happen until August is over with. The volume can be interpreted two ways. It really depends on the time frame. If the whole pattern of the market is looked at since April 2010 it would seem that the volume has steadily declined and price has gone sideways. This could be interpreted as an exhaustion of sellers. But if we just look at the last few weeks low volume then it shows a bearish pattern consistent with the rising wedge. But as I said in a previous post sometimes rising wedges break out topside too, and that is the risk here.

  5. Ayush says:

    Tom !

    You are awesome!! Thanks for your analysis. I would LOVE if you could do a write up on PCLN and AAPL and perhaps AMZN in the coming days.

    I personally shorted AMZN before earnings and covered immediately the next day. I was in complete disbelief that is retraced its entire loss within the same day and I am completely disgusted with the way it is trading now . The multiples dont justify that price.

    Looking forward to reading your analysis. I learn so much from your blog everyday its amazing!! THANKS SO MUCH !!

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