Those who bought SPY Puts or shorted the SPY when I posted my over-extension charts in my last article on December 26th have made a lot of money in a short time. After today's big down move it really is time to start watching for a Fed intervention as the S&P 500 closed Monday at several key support lines.
First we need to take a look at the chart above, a midterm channels chart of the S&P using two-hour bars. Most notable is the blue line coming across from the mid-September high which the S&P closed right at at today. Also, today's closing found us right at the lower line of the red downhill channel and at the center line of the uphill green channel plus the lower line of the steep, thin purple line uphill channel. We had a closing that is essentially right at four key support lines at the same time.
Looking next at the updated chart above which I last showed on 12/26 when the S&P had reached maximum extension, I have inserted two thin red lines up through the center representing the area or "band" where the Fed intervenes in the market. Today's closing was just pennies into that band confirming that it is time to be watching closely for the Fed to come in. In the past year and a half they reversed every sell off in that narrow band except for the early October plunge which took the S&P all the way down to the 324 EMA line. Taking that into account, it is certainly possible that they may save their powder and just plan on a monster short squeeze from the 324 line a week or two from now or they could come in during the night with one of their trademark Futures ramp jobs. Nobody knows but if you are still holding Puts or short the SPY from the 12/26 max extension, it is time to weigh the risk/reward of holding further since we have entered the area where an intervention can happen at any time. After Tuesday's close we will probably have resolved the multiple lines support situation and we will have a better feel for where the market will be heading next at least in the short term.
Finally, taking a look at the S&P yearly candles chart below we now have a new yearly candle open.
One might say it is just a little too far above the blue 20 EMA line.
Trade well my friends