Sunday, May 10, 2015

May 10 - Weekend update, Friday's exaggerated move up leading to breakout or another rinse and repeat?

We are at the top end of the range again and for SPY following a sort of descending broadening wedge and in IWM/ QQQ more of a downward channel.   I went 1/2 short SPY at close Friday and sold my remaining SPY long position.  Given that the trend has been a solid grind up but failing to breakout, I am favoring another move down into the consolidation zone.  Friday's move was a well engineered move to trap shorts and I am not sure whether we will see significant follow through as it might have more been of a well timed squeeze.  

VIX spiked down hard Friday making an extreme move that in recent past has led to equity sell offs 4 out of 5 times.  The combo of stochs + CCI buy signals on VIX hourly frame with a reading of 12.8 or below has prefaced almost immediate sell offs in SPY.  The one time it did not immediate trigger the market eventually sold off a few days later.  

IWM is in a similar position as in the past where it printed black reversal candles to continue its downward corrective trend.  We have a buy signal on the IWM daily and it will be telling to see if it follows through.  If it is a false signal, I would expect the other indexes to follow suit.
SPY at the upper end of its range within what could be loosely called a broadening wedge.  It issued a sell signal at close on the 30 min + 1 hr frames but it is no guarantee.  If we have a close .5%+ above previous all time highs I will close my short position.  If we consolidate for a few days, I will also close probably as it may mean another leg up.  That said, the huge gap on Friday is the type that could easily topple over if follow through doesn't occur.  If there is a toppling over, 209 in SPY would be the first target at a 2/3 retrace of the move up.

Much has been made of the existing consolidation in SPY as a bearish rising wedge but it could easily be a rising channel that could eventually break to the upside.

CPC (put-call ratio) spiked down on Friday.  In the last 6 mo, this has led to up days following the spike only 5 out of 12 times.  Not a huge bearish edge but one to consider.
NYUP volume triggered a major up day, also with a slight bearish slant for following days.

On a long term note, I will be carefully watching the SPY 20 yr chart.  On the downward breakouts on RSI, it has coincided very well with long-term corrections.  Upon a breakdown, a more aggressive short could be when price comes back up to the 100 day MA.

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