The negative divergence on the daily finally took its toll this week and SPY declined 4 points to the daily trend line, but now the daily indicator is oversold so we may see a bounce, and as long as the trend line holds bulls still have hope in the short term. However, it looks like SPY chose the bearish option I was warning about in the last weekly posts, so it’s time we started talking about some bearish scenarios (spoiler – there is also a bullish scenario). There are negative divergences on both the weekly and monthly indicators hinting a possible bigger and longer correction than a few days. In my opinion we may see up to 20%-25% correction that can potentially go all the way to ~150. I see some possible resistance points at the weekly trend line around 178 and the Monthly trend line around 163 but after that there is nothing until 142. The bullish scenarios are of course that SPY tests and bounces off one of the trend lines, Daily, Weekly or Monthly, so far it bounced this week off the Daily trend line but I have very little faith it will hold much longer. Let’s hope I am wrong.
The system made 2 short reversal trades this week making a profit of 2.76 points so far. One of the positions is still open and you can read about the stop points here.
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