SPY ETF is Choosing the Bullish Option

So far 2 hours before the close of session it looks like the sp500 and the SPY ETF wants to choose the bullish option.  In my previous post I made the point that despite the potential for topping as of 9/17/2010, the market was not showing us a real confirmation of anything yet. 

Dojis and hanging man candlesticks are meaningless unless they show confirmation.  I also mentioned in my previous post that it would be typical for the market to squeeze the shorts who shorted the market too early at the top of this important resistance range.  This is exactly what appears to be happening today.  The early shorts are being tested today as we have the market trading above the important resistance line.  They must now decide to either cover their shorts or sit idle on the assumption that today was just a head fake.

I suspect that today will not be a head fake and the market may squeeze higher right into the close today, possibly leading to another panic squeeze higher tomorrow.  That can lead to new longs coming in with bullish confirmation by the close and also previous shorts switching to long as well. 

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If the SPY ETF closes either mid range or top of range today then I have to view that as a bullish continuation signal and a signal for new long entries from my original bottom call that was on end of August 2010.

Is There a Lesson Here Somewhere ?

I think this is a fascinating market dynamic we have right now and it is very educational.  The education I am referring to is that as of the 9/17/2010 close there was no clear signal to go either short or long the SPY ETF.  There were some possible clues, but in my opinion there was absolutely no hard evidence of a continuation buy signal or a sell (short) signal.

Despite this fact I am quite positive that thousands or maybe even hundreds of thousands of traders still went short the market 9/17/2010 before there was any signal?  Now all those shorts are being squeezed and facing decisions to take a small stop loss or ride it out for a possible reversal tomorrow or some time this week.

I am not making this point to sound like a smart ass.  I am making the point because I have too often made the mistake of thinking that I am smarter than the market itself and that I want to get in before any real signal is indicated by the market.  Me getting in too early before there is any real signal has cost me the expense of too many stop loss orders.  Surely there is nothing wrong with taking a stop loss to protect yourself if you are wrong, but why go through the frustration of taking a stop loss when it could have been completely avoided in the first place ?

I want to wait for clear and decisive signals the market gives me where it removes as much doubt as possible.  This is the proper way to trade in my opinion. 

If we close near the top of the range today then the 113 level on the SPY ETF will transfer into new support and provide a short term floor for any possible later corrections this week.

But so far the tape action today is looking like a clear ‘new addition longs’ signal to me, and I have to respect the tape. . .

Final volume today is also going to be interesting.  It seems like another moderate volume day, but closing above the range strongly is as important if not somewhat more important at this point.

Posted in Market Timing, SP500
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7 comments on “SPY ETF is Choosing the Bullish Option
  1. Geoff says:

    i am a bear with absolutely no conviction in this market, but today was damaging. full stop

  2. Geoff says:

    further to my prior post, for those bears that hanging on – – plse see the post today at

    http://www.elliottwavehound.blogspot.com/

    this EW analyst expects the top to fall short of 10850 on DOW and we are almost there now. in essence he is saying this is false breakout. he says he has been waiting 2 years for this setup and he expects market to collapse to SP 875 or lower. i must say, i think the Republicans would take great pleasure in seeing the market tank big just before the election. EW has really been beaten over the head over the past year – – – very little confidence that what Prechter and his brethren are preaching. maybe this time they will be right! ?

    still hope . . . . . possibly. . . . it sure fits with my fundamental belief that we are in a world of hurt. . . after today, if we go a little higher and stabilize for just a couple days than the investor sentiment readings for this week will be taken and will probably be even more bullish than those published in 20 Sept Barron’s – – namely the Aall Index which was 50.9% bullish.

  3. Geoff says:

    i think today was very deceptive. a lot of tech heavy weights barely budged or were slightly down. the heavy lifting was done by only a few tech stocks (Apple, Google). meanwhile yahoo -.03, orcl +.01, msft +.21, intc +.12, csco -.11. strange to me.

    the 10 day moving average of Arms / Trin index after close today is at 1.00 (dead even), and was at 0.80 two days ago (a very low reading).

    a speculative stock i watch, las vegas sands (lvs) was up only two cents but $650 million of stock changed hands. normal volume for lvs but not a normal reaction given a big up move in overall market – – normally this stock exaggerates the market move, whatever it is.

    my “gut” which is frequently wrong, says that something smells very fishy. i am talking my book as i bought some puts today and had bought puts last thursday as well.

  4. ricetoaster says:

    I’ve been holding my SPY 110 puts since it was 108 and needless to say I’m losing my pants. Today I bought SPY 115 puts. I think the SPY has been up 12 out of 14 days without any good reasons. Let’s see how far the FED can prop up this market.

  5. Tom Tom says:

    A false breakout is always a possibility I suppose, so that would mean we would need to close and fall back under 1120 on the sp500 or 113 on the SPY ETF. That would be quite surprising. I am sure the republicans would love to see the market tank, but at the same time the democrats seem to have the Fed in their back pocket right now. They want this market higher into the elections and they want that GM IPO to come out before the elections too.. so the game continues..

    Elliottwave seems like it is failing badly.. I am still to this day surprised at how many people rely and trust elliott wave. It just seems like the wave counts change at the worst possible times. On the other hand there were some rallies during the 2007 top that looked like they were about to start new bull runs but then just collapsed. So 1120 is the key level for a possible failure signal.

  6. Tom Tom says:

    I haven’t looked at LVS in quite some time, thanks for reminding me of that one. The most recent advance in LVS looks to be on quite meager volume.. seems like it could be overdue for a downward dip. Amazing that AAPL closed to new highs above the range. But volume was also not the most convincing. But the weekly chart does look quite strong still.

  7. Tom Tom says:

    Many times the market has sold off on the ‘expected’ Fed news… I am sort of thinking thought that yesterday’s big up move was already the market reacting ahead of todays Fed news. If the market cannot manage to crumble below 1127 or 113 on the SPY ETF then I would be careful about expecting too much downside. On the other hand if 113 or 1127 is broken down through easily then I would say things have the potential to turn quite bearish again.

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