Tuesday, June 5, 2012

SPY - longer term has more to go on the downside


Somewhat like the last post about the prospects of AAPL's intermediate to longer term weakness as outlined by its weekly chart, below is a weekly chart of SPY painting a similar picture. Although the short term is somewhat oversold and the action this week is giving the bulls some cajones, the intermediate term view doesn't look so promising.

As you can see from the weekly chart below, similar scenarios occurred in the summer of 2010 and summer of 2011. As SPY approached its 50week moving average the oscillator on the bottom was just beginning its fall below the red horizontal line. From there SPY was able to bounce a little in 2010 and a little more in 2011 before ultimately going back below the 50week moving average and recovering when the oscillator went below the green horizontal line.

Currently the 50week moving average is again coming into play, and like 2010 and 2011, the oscillator is just starting to fall below the horizontal red line. What should unfold over the next 6-10 weeks or so is some bounce activity no higher than the 135 area on a weekly closing basis and a further battle around the 50week moving average. The SPY will likely fall further towards the 120 area but the real call on when the bottom will be put in place is when the oscillator is below the green line and especially when it starts to turn up. That will be weeks from now and hopefully I will be revisiting with a more upbeat post. Until then, it looks like sell the rallies will continue to be the way to go.

(NOTE: s&p futures/eminis wasn't used because you get a cleaner long term weekly picture with the SPY. SPX can be substituted for this analysis if you are looking for approximate levels in the index...or you can email me/comment here and I will address it).


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