A 7 Month Look Back At The S&P 500 (SPY) - What Now?

Several conclusions can be drawn from this DAILY chart of the SPY . Even more questions will no doubt come to mind as a result of those conclusions.

If you thought you might find the answer to the above question you can stop reading now. The easy answer to the question is not in here. I surely can't foretell the future. Honestly, you wont get the answer anywhere. Maybe you should keep reading after all...

Let's talk about some possible "What Now" scenarios.

The market could just continue higher...
Now this is a very unpopular scenario. When was the last time you heard a majority of the investment news guests leading you to believe that everything is good and the markets are poised to go higher? Yea, I can't remember that either. So it doesn't seem like many people are in this camp. To all of the people calling for a correction, all I have to say is look at the chart. The market just broke above a resistance level that was established in February. SPY has closed above that $212ish level for 6 days now. All I am saying is it is a possibility...

The market could go sideways for a while...
Lets say the SPY sinks back below the $212ish level and hits the green uptrend line before going back up to the $212ish level where it is rejected again. It goes back to the green uptrend line again before turning higher. Etc... This could go on and on and on. It might be July before the "Wedge" is resolved. And then you will still have to play the break of the wedge properly to profit from it. All I am saying is this too is a possibility...

The market could go lower any day now and make a bunch of business news guests look like really smart people...
If this is the market reality we are faced with as so many are predicting, let's look at what has to happen and how to deal with the possibilities.
  • First thing is the SPY will have to go back below the $212ish level. This would, at the very least, give us a "false breakout". If you want to see an example of this occurrence just look at December of 2014 on this chart. You will see SPY broke above the $208ish level then came back down below it. The SPY was at $198.5ish in 4 days.
  • The next thing SPY will have to do is close below the $208ish level. If this happens then SPY will break recent support. At this point SPY will probably be below the green uptrend line as well. Now things are beginning to get interesting. Let me say that this is the point where you should get concerned about where the market may be going.
  • The $204.5ish level is the next support line to focus on. If the SPY is going to find support this is a logical place for it to happen. There are no guarantees but keep your eyes on this level.

Let me put this hypothetical SPY decline into perspective. If SPY closes below the $204.5ish level, it will be about 3.5% below its highs. If SPY closes below about the $201.5ish level, it will be about 5% below the highs. Many are calling for a 5-10% correction. So at this point they would begin to be correct.

  • The next support level the SPY would have to close below is the $198.50ish level. This would be a 6.5% decline. Below this level is a level in the mid 180's. These are not the areas where you want to be getting out. These are the levels where you want to try getting back in.

Many big players will begin to lighten up on their longs if SPY goes below the $212ish level. When they lighten up, you need to be light on your investing feet too. It would be a good idea to raise some cash at that point. With each support level that is lost, the big players will sell more. This will push the market lower. What is their goal? It should match yours. Simply to lose less, have cash available to buy back shares at some lower price, and make more money on the way back up.
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