SPY May 3 2013

SPY May 3 2013

Now that everybody (at least the Bulls) is overjoyed with the sharp move higher today for surprisingly little reason (the jobs report was OK, not spectacular, with a boatload of statistical artifacts), the chart is set up for a nice correction to shake some money loose from the overconfident Bulls and the terrified shorts who had to cover today in a panic That largely wiped the slate clean of shorts, which leaves the downside wide open. A correction may not happen - we could go straight up forever on taxpayer money if this truly is Bizarro World - but the odds, based on the position of SPY in the channel, the big Dow milestone that was hit (always ominous for future market action), and the natural urge to protect profits and the Bearish to re-establish positions, now favor a pullback or at best lengthy sideways action.

I usually don't read too much into the candlestick patterns on the chart, because this market hasn't respected them. However, if an abandoned baby pattern forms on monday, that would be quite Bearish.

The bottom of the channel is roughly 1535. I would be very surprised if we do not see that at some point over the next few months. If that goes, we get an actual correction to the 1400s (similar to what happened last summer), but that hasn't happened in quite a long time - since, well, last summer. We have plenty of time to think about lower thresholds before we get anywhere near them. Even if the market somehow continues this buying frenzy, it will come to earth at some point, because it always has before. And, no, this time is not different.