SPY June 13 2013

SPY June 13 2013

SPY made the expected re-test of 1600 on June 13 2013. It bounced cleanly and wound up in the 1630s. On the surface, this was a satisfactory outcome for Bulls.

However, several things were extremely troubling about today's action. First, futures dipped lower during the overnight Globex session than during the last test of 1600. They also wound up lower afterwards, unable this time to even break 1640.

These may sound like minor quibbles. Perhaps they are. The market reacted well to the good claims data in the morning, though the bounce was only partly attributable to that and was more technical in nature.

At the close, SPY hit the top of the channel we drew on the daily chart the other day and stopped cold. That's why we draw them. Odds are good that this hit of the descending channel top is as high as we get this go-round. I will note parenthetically that this market is respecting the channels, the major moving averages such as the 50-day MA, and the "bright-line" support levels such as 1600, but little else. You can forget about relying on Candlestick patterns and stuff like that.

If we're not going up, we're eventually going down. An average can only hit a key support level so many times such as 1600 before it shatters, and the "expected" bounce never materializes. At that point, it will be the Bulls who will be panicking instead of the Bears as in the past couple of tests. The Bears may not be panicking as much and growing more confident, which may account for the lessened bounce. We could see SPY 1540 in a hurry if 1600 breaks, as that means the major uptrend channel will be violated as well as the 50-day moving average and the magical 1600 level. There's nothing magical about 1540, either, but there's a lot of congestion there that should provide at least a temporary safety net.

The Nikkei 225 cannot keep tanking with the SPY just acting like it doesn't matter. It does matter, and the Nikkei will drag the US markets down with it unless the Japanese get their act together over there.

I said back in early May that the likeliest time for a pullback was early to mid-June. Perhaps it is coming about a bit later than I thought, but it sure looks close now. It is important to be judicious and time it right, but, except for those trend-up sessions such as today's that always make everything look so nice and comfortable for Bulls again, shorting the pops increasingly looks like the strategy with the highest favorable odds. In other words, it is time to lean short.