Looking Ahead to Tuesday's Open

After heavy selling last week and a day of consolidation today, we find ourselves at some key support on the SPY. I thought we would get more of a bounce to the upside today and though we got a small retracement, the SPY didn't give any indication to suggest there is any strength to a bullish position. If anything we are looking to be in a bit of a bear flag pattern heading into Tuesday's Open. This would suggest we will move lower tomorrow.

How to play it?

Well, lets watch how the market opens tomorrow. If the SPY opens below or trades below $109 watch for the next major support level which is $108.79. If SPY can confirm a move below $108.79, I would look for an opportunity to short the market. Watch early morning trading, If SPY touches $108.79 but can't confirm a move below it, that would be a great spot to go long the market. $108.79 is a very important level, so play it accordingly.

SPY Daily Chart Showing Bear Flag Pattern and Potential Price Targets


TECHNICALS
The SPY opened at a retracement of 50% from Friday's high to Friday's low. This was a great short opportunity if you took it. Late in the day, SPY threatened with a false breakout above the 50% retrace, but closed the day lower. That type of a move is pretty bearish, and I expect that we will trade down lower to open the day tomorrow. The question is, how much lower can we go? Breaking below $109-$108.79 will be very significant. The last time we were below $109 was November of last year and it was tested many times as the SPY traded range-bound throughout December. $108.79 marks both an up-trend support line dating back to the August 2009 lows as well as the 100 day moving average. It should be strong support.

Some levels (or potential trade targets) to be aware of:

If SPY confirms a Move Below $109 or $108.79
$108.38
$107.91
$107.51
$107.16
$106.73

If SPY does not break down below $109 or $108.79
$110.40
$111.29
$111.60
$112.27
$112.97