SPY Closes Under Daily 20

Thursday's sell-off gets follow-through

On Jul 27 we saw SPY print a new 52-week high post-FOMC. From the opening bell that price was rejected with the largest daily print we’ve had in quite some time.

When we see a big print such as that we want to see follow-through to know there is conviction behind the dominant side. What we got was three inside prints that followed; not exactly conviction by either side.

Shorts finally stepped in and printed a lower low yesterday. Overnight, /ES has continued to drop and at the moment we’re looking at another full gap down.

Yesterday marked the first close below the daily 20SMA since May 24. Since that time we have seen three dips get bought. And, buyers did try to step in yesterday to preserve the trend, but failed.

On the daily next support for potential longs comes in around $447.50; the full gap up of Jul 13. Next is broken resistance from the two swing highs in June around $445. Below that is the quartenary trendline currently in the $443 area.

While shorts currently have the momentum it’s going to take more work to demonstrate they are in charge. At the moment we may simply be seeing more profit-taking than anything else. These corrections are healthy for the market and give excellent opportunities for new long positions to be opened or added.

But, first we need to see signs buyers are stepping in. I want to see buyers flip the 9/21 EMAs which should also mean a push over VWAP (green). From there I want to wait for a pullback that stays above VWAP before opening any new long positions.

You’ll notice towards the end of the day Tues we got precisely that action. What we did not get was continuation. There was clear intraday resistance at $457 and nothing enough to instill confidence the low was in. There’s no need to try and catch the precise low. Simply be patient and let the market confirm the low is in.