Chart Talk {05.16.16}

Friday the 13th proved unlucky for stocks.  Lets take a look for our proxy for the S&P 500, its ETF SPY.  Chart is from TradingView.com. {Annotations to the chart are mine.} The numbers below correspond to the same numbers found in red on the chart.  In terms of orientation you are looking at a chart of SPY going back to February, 2014.  It is showing the well  defined trading range the index and by representation the overall market as it has developed since then.  On the S&P 500 the green horizontal line at the top represents ultimate resistance, a level that stocks have been so far unable to clear during this period and the red line at the bottom is support.  That is red represents an area where buyers have turned up each time the market has traded down to that region.  The other horizontal lines  colored blue and orange represent by our work secondary levels of support and resistance.

1.  As usual we'll focus on the fact that SPY once again was unable to clear the bar that's the resistance we've seen form between roughly 208-212 on the index and shaded in yellow on the chart.  By our way of looking at this there's now been twelve times since late 2014 when the markets entered this zone and been unable to trade higher.  The index is trading right now at the same prices first seen back in mid-November, 2014.  It is also now trading below that green downward sloping trendline {1a}which started from the market highs about a year ago now and shows that for the most part the index has continued on a series of lower highs after each market rebound.  The recent rally off of February's lows did violate that trendline,  but as you can see we are again trading again below it.

2.  SPY has now entered into what we define as a secondary level of support and resistance with resistance around 208 and marked by that light blue line and support represented by the licker orange line around 201.  Clues as to future market direction will come by how the market reacts to each of these.  

3.  Keep an eye out for that upward sloping red line marked as 3. on the chart.  That is a trendline dating back to the market lows in 2009.  We breached that line briefly back in February for the first time since the bull market started in 2009 only to promptly turn around and trade higher. However, that line keeps trading up as the market trends sideways and at some point it will bump into current prices unless we start to trend higher.  Traders pay attention to these things so I think it's important that investors at least know what others are watching.  Traders are at some point likely to pay attention to a possible intersection between the green line at 1a and the red line represented by 3.

Market has been working off its overbought condition.  Probability suggests that a few more weeks of this choppy action could set the stage for a classic summer rally if the same trading patterns continue.

*Long ETFs related to the S*P 500 in client and personal accounts although conditions can change at any time without notice.