The SPY opened this morning down $1.65 at 132.75 and went as low as 131.91 before getting a bounce back up to 132.50. From there the SPY traded back down and briefly touched 131.84, breaking the intraday double bottom and getting another small bounce. The SPY then traded lower again, hitting 131.66. From there the market traded mostly sideways for the rest of the day as is typical after a big move in any direction.
|SPY 10min traded down for the majority of the day|
These European debt issues are and will continue to be a serious issue for the markets, but the fact remains that the major stock indices are severely overbought and overdue for a correction. As long as this remains the case, any news the markets interpret negatively will cause them to sell.
Technically speaking, a second down day in a row after such a big rally during the past two weeks is significant as it tells me we're definitely in a short term correction. The question now is how much more downside can we expect in the short term.
The 132 area is the first level of major support. This was the breakout area before the massive follow-through rally that began the week before last on Friday. Just below here at 131.50 is the 50MA on the daily chart. As long as the market can hold this area, it's possible that we bounce and recover, but if it breaks we may have a more serious correction at hand.
|SPY daily will have support at dotted blue lines, resistance at double top|
I'll be watching these levels closely this week. Hopefully after a few more days of trading we'll have a better idea of which levels are going to be good for an extended move, either long or short. Until then, especially during options expiration week, I expect to see whips up and down. Weeks like this make swing trading difficult and is better suited for shorter term day trading.
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