SPY ETF Gaps Down Below Long Channel on High Volume

Today I give the bears 4 out of 5 stars.  I think it can be said with a reasonable degree of confidence that they got the job done and done well.  On the other hand, given the bearish news today, I would have thought a 5% down day would have been more appropriate.

After the gap down and downside follow through into the news the market got an extended typical rally going that probably had a lot of bears feeling disgusted once again.  But despite the attempt to get a strong hammer reversal by end of day the bulls did not accomplish anything significant in my opinion.  The opening gap was not filled and still remains open.  The other day I talked about how the very large WEEKLY opening gap higher in the TLT was a sign of strength and could lead to another few weeks of upside or a parabolic blow off.  Part of the reasoning for that is the view from the Japanese interpretation of gaps is that they can serve as ‘opening windows’ or beginnings of very large moves.  But that interpretation of course depends a lot on the context of where the gaps are.

So in my view, the daily opening gap down in many of the major indices today will serve also as an ‘opening window’ towards more weakness into the end of this week.  Eventually there will be a capitulation, but I think it is way too early to be talking about that yet.

spy20100824

The chart above shows the long sideways channel trading range on the SPY ETF and shows clearly that today’s gap down on high volume broke below the channel trading range.  I see this as initiation of a larger move down.

In order to cancel the bearishness of this gap down today the SPY ETF is going to have to close at 106.88 or higher during the next few days.  That is an extremely unlikely scenario and I do not expect that to occur.   However, it would not be that unusual to see a rally tomorrow right back up to the underside of the channel that ‘kisses’ it briefly (to a maximum of 106.60 on the SPY ETF).  If that happens it would serve in my opinion as an outstanding ‘reload’ shorting opportunity or new shorting opportunity.  I am still heavily biased to more downside price action as the week progresses. . .

Posted in ETFS, Index Trading, SP500, Technical Analysis
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