We Finally See Some Weakness in the Market, What's Next?

Well, the two days of selling last week were long over due in my opinion. But what does it mean? Is it a sign of more weakness to come, or are the bulls still in control? Well, technically the market is still bullish. The SPY monthly and weekly charts have yet to dip below the up-trend-line dating back to March. It is important to note though, last week's candle on the weekly chart closed right on the up-trend. If the SPY closes below the trend this coming week, it should trigger more movement to the downside. We are on pace to open the next weekly candle below the trend. This has not happened since the bull market rally began in March. On the daily chart though, we have pierced below the up-trend line which could be a prelude to a weakening market. However, there have not been consecutive daily candles that have closed below the trend, so the bulls do maintain control. The bull's case could be weakened if SPY does not close above $114.20 on Tuesday. This will mark consecutive days below the trend and add strength to the bear's cause.

SPY Monthly Chart Showing Bull Market Up Trend Still Intact

SPY Weekly Chart Showing Bull Market Up Trend Still Intact

SPY Daily Chart Showing Bull Market Up Trend Still Intact, But Signs Suggest Potential Weakness


The next major support level comes between $112.20 and $112.40 or around the 50% retracement level from the 2007 highs. If the SPY closes below this level, it will confirm that the bears have control of the market. It will also suggest that the market has topped and there is a strong chance that we could see even more movement to the downside. If you notice how the market has moved of late, you will see that the up moves have been slow moving on low volume. The down moves have been quicker with higher volume. Expect this pattern of faster declines on increasing volume to intensify if we do continue to break support to the downside.

This coming week, I wouldn't be surprised to see a break below $113.20 at some point. When that happens, SPY should move down to the $112.40 price. It will be difficult to move much below that as there is strong support below this level. From here, I will look to play a range based market with $112.20 - $112.40 being the base and $115 being the top.

If this is a true market top though, we shouldn't even move above $114.20

Key Levels:
$112.30
$113.20
$113.90
$114.20
$115.14