Best Online Trades is seeing at least a possibility at this juncture of a swift ‘mini crash’ type down move in the SPY into the end of November 2011. The October 4th, 2011 price swing low in the SPY ETF is standing out like a sore thumb and it is starting to look like a good probability it will be tested. This SPY technical analysis attempts to get into the mind of the market to try to find the true market bias. The near term bias is in a down trend, however it has been in a somewhat constructive down trend. Best Online Trades is speculating that this current constructive down trend will turn into a mini panic cycle that catapults the SPY into the October 4th, 2011 price swing low.
The October 4th, 2011 SPY price swing was on 458 million shares and was a quite heavy volume swing low. This high volume swing low serves as a magnet for the market is now looking likely to be tested. If our forecast is correct then the information that is revealed at the test of the 10/4 swing low will be very useful information for future market behavior.
The SPY technical analysis also suggests that the current down leg in the SPY could equal the magnitude of the depth of the early August 2011 down leg. A move down to the October 4, 2011 price swing low would create a down leg roughly equal to the early August 2011 down leg.
It is currently Best Online Trades theory that we could see a somewhat swift flush out type move into the end of November which occurs on Wednesday of next week or 3 trading days from today.
If our forecast is correct then the SPY technical analysis shows that there would then be a strong upward reaction bounce between 1 to several weeks from the October 4th, 2011 swing low which is near 107 on the SPY ETF.
Data that Goes Against this SPY Technical Analysis Scenario
The only data currently goes against this near term SPY analysis scenario is the last 6 days volume action on the SPY. The last 6 days volume action has not been accelerating as it did in early August. However we could see 3 days of accelerating volume during the last three days of November 2011 next week. But for now the volume is not accelerating. This could have two interpretations.
- There is still a lot of bullish complacency and traders/investors are unsure and doubtful about another extended SPY market drop.
- The current down trend does not have enough energy behind it and puts the decline in doubt.
At this juncture I have to favor scenario 1 above. The SPY weekly and monthly technical analysis still favors the bearish side of the market.
The current market action in the SPY since August of 2011 is showing complex technical bear market type action. We are seeing wide trading ranges, large extended bounces and still as of yet no persistent dominant trend.
This could change very soon because if we do see a swift SPY move down into end of November 2011 on much heavier volume then it could really start to move downward momentum indicators (such as the longer term moving averages) into steeper down trends.
If it is true that we are still in a longer term bear market phase then the current SPY technical price action is consistent with the early phase of a large bear market down leg. The action does resemble quite a bit the early 2007 market action that preceded a huge extended bear market down leg.