Damn if I know where this market is going. One thing is for certain though, all the indexes are still below their 50 day exponential moving averages. And as I stated a few days ago, the longer prices stay below the 50 day EMA, the more difficult it will be for the Bulls to mount a comeback.
On Wednesday, I recommended to newsletter subscribers to short the Spyders (SPY) after breaking down below the neckline of what appears to be a classic head and shoulder top. Once breaking through the support of the neckline, which is at approximately the 90 level, it becomes strong resistance. A backtest of that level increases the probability of a short. So the setup was an entry in the 87.50 to 90 range, with a stop just above the neckline at 91.75, and a target of 82.50.
So, the rally, or uptrend off the March lows, is over. We’ve had a topping pattern in the form of a head and shoulder pattern and a breakdown, which has started a new downtrend. The next level of support is a difficult one to measure. On the S&P we have the 875 level, which most investors believe is the final line in the sand. If that level is lost, the Bears will seize control and the short should pay very well.