A Lower Low

SPY barely hangs on to the $390's

I had closed the Wednesday morning post stating,

I’m comfortable with new longs today provided we stay over $396.

At that time it looked like SPY was trying to establish support around $398 and though we might get another leg lower I did not feel we’d break $396 at that time.

And, to be fair, if you had gone long Wednesday morning you would have been green yesterday morning. But, I really should have specified what I was looking for; I didn’t and that’s my screw-up.

The action Wednesday was just shit. It is very rare to see price action linger in a specific area and not eventually break. Reversals, more often than not are v-bounces or close; not horizontal corrections.

When you see this type of action below, it is safe to assume the prevailing trend is going to continue.

You’ll notice on the right side prices actually started running which brings me to my next point.

This is Thursday’s action. We opened with a very tiny gap and printed a few candles to continue off that gap-up before we hit resistance in the $401 area. SPY would test that open which would hold. And this would have been a great long entry if that’s where you were leaning.

The warning came in the bottom of the 10 hour where SPY went sideways with very tiny candles below the HOD. We already were seeing buying pressure dry up. SPY retreats back to the $399.50 area and we start to see more sideways action with tiny candles. Then the bottom pretty much falls out.

Follow-through is absolutely critical in this market. And the market told us early we would not get a continuation off Wednesday’s close. If you went short early yesterday morning, congratulations.

Let’s zoom out now to the hourly and see what we’re dealing with.

That ghost primary trendline is coming back into play. We “tested” it twice Feb 24 and Mar 1 and under that criteria this will be our third. It’s safe to say we have a downtrend established but recognize it still remains in a larger-scale uptrend.

Shorts will need to get follow-through today and I lean towards that being highly likely. At the moment /ES futures are recovering off an overnight lower low and SPY is looking at opening about even or slightly down.

Any gap-down I would look to get filled immediately but the open and yesterday’s close are the most logical resistance areas. If SPY gaps and falls we’ll see the if the remnant primary trendline offers any support in the upper $380’s. $387 will be a key support level.