The SPY Technical analysis still seems to suggest that the market will slam down into the October 4th, 2011 price swing low. We have recently seen a strong two day ‘Thanksgiving Holiday bounce’ in the markets. In order for the more bearish forecast to come to fruition, we really need to see the market close down into the end of this week and preferable finish the month of November on a down move. Tomorrow is the last day of November 2011, so ideally for the bearish case, we would see the SPY ETF move down hard tomorrow.
The recent two day bounce we have seen in the SPY was interested, but it was on light volume and today did not seem to show much follow through. This is a short term bearish sign.
The monthly, weekly, and daily price action continues to be biased towards the bearish side and the intra day action remains slightly bullish.
Notably individual stocks such as BAC (Bank of America Inc.) are floundering near the price lows and possibly at risk of downside breakthrough. This is not exactly the type of price action that could inspire a huge upside December SPY rally.
Can the SPY still save itself ?
Tomorrow is the last trading day of the month of November 2011 and will finish the creation of the monthly November 2011 price candlestick. There is conceivably a remote chance that the SPY can create a bullish outlook going into December 2011. Specifically, the SPY would need to surge to the equivalent of the 1250 to 1260 range in the sp500. This would be a huge upside move, but if accomplished would potentially change the bearish November 2011 price candle into a potential bullish reversal hammer candlestick that could portend higher prices in December 2011.
It would be an amazing feat for the SPY ETF to stage such a huge upward move tomorrow. The SPY technical analysis does not seem to congruent with such a scenario at this time but I thought I would mention it as a remote possibility.
The much stronger bearish monthly interpretation is for the SPY to close near the equivalent of the 1158 range in the sp500.
Watch the US dollar Index for Clues in the SPY Technical Picture
The US dollar index is either at a juncture of topping out in the form of a double top, or it is on the verge of a MASSIVE upside breakout that will catapult it above the 80 range and send the SPY lower. So far, the US Dollar index has maintained composure. Watch for the US Dollar index to surge above and through 80 as a warning that the SPY could break down.
December Seasonality in the SPY
The seasonality is generally positive for equities during December and so it would seem to suggest against the bearish case. A lot really depends on how we end November 2011 and then how we enter December 2011. The price action by the end of this week really ought to give some much stronger clues about the next persistent trend direction for the SPY.