The S & P 500 SPDR ETF (NYSE: SPY) is in the middle of a critical
trading range. And the way it breaks will likely set the tone for
the next move in the market.
Chart Courtesy of StockCharts.com
There are four chart points that will decide the direction of the market in the
next few days. They are the 20 and 50-day moving averages on the S & P 500,
and the upper and lower volatility bands, otherwise known as Bollinger bands.
These bands are plotted two standard deviations above and below the 20-day moving
average on a daily basis and form envelopes around prices.
When the bands constrict, it means that volatility is shrinking and that some
kind of a move lies ahead. That's what's happening now, the bands are shrinking.
The upper band is at 111.48 and the lower band is at 108.48 on SPY. That corresponds
to roughly the 1114 and 1084 chart points on the S & P 500.
The 20-day moving average is at 109.98 and the 50-day moving average is at 108.10.
That defines the key trading range, with major support and resistance levels
for SPY, and if you muliply the numbers by 10, you get the key figures for the
S & P 500.
That means that the fate of the market is down to what happens over the next
30 to 40 S & P 500 points.
What's likely to happen? No one really knows, no matter what they say. But there
are some clues. For one thing the 20 and 50-day moving averages and the lower
Bollinger band have been excellent support since the market bottomed in March.
If they hold, that would reinforce their standing as important support and buy
on the dip points.
If they fail, it would also be important, as very reliable support has given
way, a sign that the market has weakened significantly and that investors have
to start looking at things differently.
Otherwise, a move above 1100 that sticks, would be very bullish, at least in
the short term.
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