In short I estimate about 25-50% chance of a wipeout type move occuring by this Wednesday. By that I am meaning something on the order of 5% loss or more.
Based on the several factors I would estimate that SPY could easily carry down to 247 by April 3-4th.
Click on Chart to Enlarge
The chart above here shows a typical time and trend channel pattern for a "flat" correction. This would project a move to the lower trend channel at April 3-4th which would be ~$247 on SPY.
That would be 4-5% below current levels and based on several scans comparing to past similar declines, that would be reasonable in the next 3 days to 2 weeks.
Points of note here are that the hourly chart currently does not have a bullish divergence occurring, so it seems more likely with this intensity of decline, that we will see either a divergence develop or a large capitulation gap down like 2% or more gap down as at least a temporary capitulation/spike low.
Also SPY is perched right at its 200 day moving average as of the close Friday. As I have noted many times in the past, these key moving average points will typically be met by gap ups with gains after the open shortly after the average is challenged. We saw a sharp rebound off the average on Feb 9th. However, the more times price comes down to touch the average, there is implication of weakness and the possibility of a sharp break down in prices.
Part of the idea here is that certain key averages factor into program trading and if the buying thrusts off the average are weak and re-tested, there may be a major break down through the average. The average and the space below it may be stop loss triggers or even trend following short trigger points and result in a large and sharp price movement.
If we are to see that occur here, the chart concern is that there is not a major chart support region until down at the $240-220 region of SPY which would be a pretty major decline.
From a chart point if prices are to break clearly below the lower channel line of the chart above, it would be indicative of longer term trending action to the downside rather than corrective activity of the bull market.
As a side note but maybe of significance, bond prices have rallied weakly off the recent lows, and as of this coming week, the key time cycles in bonds are peaking and indicate downward pressure into early or mid May. Given that prices are marginally above MAJOR horizontal support, it seems possible that a major breakdown in prices could occur on a break to new lows for the bear market in bonds.
No comments:
Post a Comment