Ammunition For The Bears

Here's some ammunition for the bears amongst you.  Above is a chart of the S&P 500's ETF SPY.   What you see here is the ETF has made a series of lower highs since the initial decline back in the spring.  Further you see where this rising trend line off of the March lows is looking to intersect with that declining line.  One of these trendiness is going to get broken in the next few weeks.  Those that follow these sorts of things for a living would likely say that based on the pattern of this chart, there's a higher probability of this being resolved in a negative manner. There's support on this chart 5-8% lower so again the folks that follow these things would look to those levels as to where SPY could initially trade down to.

The thing is I could send you 20 more charts that look like similar to SPY, which is why I'm bringing this to your attention.  If your bullish, at least in the short-term you probably don't want to see that lower line breached.  However, just because a pattern exists and just because that pattern is negative doesn't mean it must occur.   This pattern could resolve itself to the upside or be invalidated by sideways meandering for a period of time.  I bring it to your attention just so you know what's out there.  I'll also gently remind you of something I said in early June about being able to sleep with your asset allocation, especially given all that's occurred and in a traditional period coming up of seasonal weakness.

A 5-8% pullback in the context of the move we've seen in the past few months wouldn't shouldn't be unexpected.  There's been an enormous amount of money made by those that bought into the bottomming process and it's reasonable to expect some folks might be interested in taking profits at some point.  Pullbacks are part of the process.  We know one will eventually happen.  We just don't know when it will come, how deep it will be or its duration.  Planning for a decline makes it easier to accept when it occurs.

Back later this week.