On Monday, the SPY broke near term support ~113.80-113.60 and it appeared the market was headed for a little further pullback. The Monday low hit right on the prior resistance which forms the neckline of the inverted head and shoulders pattern. Buying into support as a market declines is not my style because you never know if the market will continue lower, hindsight made buying this pullback look genius, doesn’t it always?
The gap higher caught a lot of people off guard and the intraday peresistence of trend indicated that there were a lot of people positioned for weakness who ended up covering their shorts throughout the day. Of course, not all buying was trapped shorts, the market is in a nice uptrend and many participants were adding to longs as the 115 level was broken quickly. The high made last Thursday near 115.60 will be our first level of potential support and then 115.00 below that. It looks like the market is now set to test the post flash crash highs near 118. They say the “risk trade is on” but don’t forget the risk part of that. Look at EQIX.. they warned about their upcoming earnings and the stock is set to open ~27 points (25%) lower. Risk management is always job #1.