Depending on different technical indicators, different analyses could project the general market in different directions. As SPY and DIA are approaching their technical barriers, traders should be cautious when opening positions prior to a clear break in either direction.
Shown below is a 3-month chart of SPY:
In the above chart, the Head-and-Shoulder pattern is apparent. The “Head” is represented by the red shaded circle, and the “Shoulders” are represented by the yellow shaded circles. The “Neckline” which the pattern formation rests upon is designated by the red line. As of the close on 7/08, the S&P is sitting tightly on the neckline. A clear break below the “Neckline” would most likely send the S&P to new monthly lows.
On the contrary, if the S&P begins to rally, the short-term support level (Yellow trend line) may be intact. On an interesting note, this trend line support corresponds with the 3-month Fibonacci 50% retracement level. With an intra-day view in mind, I believe that we will witness a bounce in the SPY which will retrace shares to 200-day Moving Average near $90/share.
Even though I have a slightly bullish stance on the short-term projections for the S&P, I will maintain a close eye on the Head-and-Shoulder neckline. If the S&P were to fall even more, bears could take SPY to $85 which is roughly in line with the 61.8% Fibonacci retracement level.
In regards to my very short-term bullish projection, the purchase of $88 strike July calls and $85 strike August puts would be ideal for a quick scalp.
Disclosure: At time written, author did not own any securities of SPY, but soon to open either a long or short position in the coming days. Throughout this passage, opinions are only stated. Trade recommendations are strictly speculative, and do not guarantee anything. I highly advise everyone to do your own research and Due Diligence before investing.
Are you just stating the obvious?
The power of analysis is predicting and taking a position on the future, not pointing out the obvious on a graph. Need deeper meanings and more insight, as well as quoting your sources.