The markets this week have started off strong after last week’s dip and consolidation. Many, including myself, were looking at the short side last week since the S&P (SPY) was coming into a down trending daily 50 Simple Moving Average (SMA). Often this Moving Average (MA) is significant and results in a hard bounce or rejection, depending on which side price falls, but that is not the case this time.
SPY price was rejected by the underside of the Daily 50 SMA twice last week, but then managed to close above it by Friday. This set the bullish tone for this week.
I had inklings of this and I posted cautions in the Moxie Trading room mid-week pointing out that we may get a repeat of the April 2 bounce. A massive number of people were caught off guard on that bounce, so a huge short covering rally ensued. There is a good chance this is what is happening now, but a little more mild as it wasn’t quite as surprising with Friday’s strong close.
So where do we go this week?
I have been guiding my subscribers for weeks that SPY could rise to $294. I initially chose this level because it’s the 61.8% retracement off the March lows. It would be the right shoulder — about where the Daily 200 SMA falls and it’s where the Monthly 10 SMA sits. All of these are significant resistance levels and we do need to be wary of this bounce (yes, bounce) coming to an end.
The market doesn’t have to be rational or follow the news or economy in lock-step, but there will be a reckoning one day. We are under significant moving averages which I expect price will be pushed down by these. Plus I believe lows will need to be retested before we can truly start a new run.
Recalibration between the market and the economy still needs to happen since we aren’t even out of quarantine yet.