Stock Market Technical Analysis Blog
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In the market today, Team Yellen did open the SPY considerably higher at 3AM, which was what we were looking for with the small weekend gap trade but in the regular premarket session there were big sellers that pulled it back down some. When the regular market session opened the SPY had some of its gap up left but we decided to go ahead and sell the small gap. We were actually looking for a gap and then a squeeze to get the SPY climbing in the red short term channel shown in chart 1 above. We lost confidence that they would be able to squeeze it today after seeing a lot of large sell orders come thru after the opening bell. Sure enough, the market took a sell down for a couple of hours but then was reversed back up at the lower line of the blue channel in the afternoon. A gap and squeeze would have been the easy way to get the S&P / SPY back up into that chart 1 channel. Having seen a squeeze attempt fail, we are backing off our slightly bullish stance to a neutral bias. We are looking to enter a small long position if they can get the SPY back into that red channel without drawing in big sell orders as it happens. Right now the SPY is being contained by the small blue channel in chart 1. We would also want the VIX to drop out of its uphill blue line channel in chart 2 before entering another small long position.
Looking at charts 3 & 4 above, we see the predicament Team Yellen is in at the moment. In chart 3, they desperately need to take the SPY / S&P on up a little further to the upper line of its precise 1.5 year uphill channel. The problem with doing that can be seen in chart 4 where the S&P is already stretched out to about as far as it ever gets away from its 108 EMA line. Each time it gets that far away it is considered an overextension and it starts pulling back closer to it, not necessarily all the way down to it as sometimes they will bleed off a little selling pressure for a few days then push it back up to the maximum distance from the 108 again as they did repeatedly from mid-May to mid-July. Nonetheless, to take the market higher from here they will have to drag the full weight of the 108 with them which climbs very slowly no matter how hard it is being pulled. Thus, if we do go higher it will likely be a slow gradual move, constantly fighting the overextension pullback of the 108.
If the SPY gets back into that chart 1 channel without drawing sellers, we are not looking for a large move as the channel is not very tall. Even though today was not very positive for the first day of the month and the first day the big Wall Street traders are back from their long vacations, we do have to remember that Team Yellen often sets up failures to draw in fresh short positions so that they can turn around and jam a bottle rocket squeeze on them. We will see...
Trade well my friends