SPY Review

by Paul Costa

Support and Resistance Review: Friday SPY and the market sold off after S&P downgraded France and continued the horrible Euro mess.  The selling came right as SPY hit resistance at 129.05 and around its long-term downtrend.  SPY did managed to take back its early morning loses.  Eventually SPY bounced off support at 127.77 and was able to get back above 128.54. 

Short-Term Techincal Damage:  SPY broke the short-trend line that started in late December.  There isn't an established short-term downtrend so the market is now neutral at this point.  Stretching out the timeframe the intermediate term trend is up and the long-term trend is down.

Threats to the Bulls: The dollar and Eur/USD will continue to control this market, both were open on Monday and the Euro continued its decline-making a new low for the year.  DX has broken above the key 81.52 level for the 3 time, the more it breaks this level the strong it gets. 

Threats to the Bears: The market has been selling off at the downtrend and the high 129's but also has remained above support.  If the bulls can take out 129.70-130.  It would start a big rally. 

Overall:  The market is overbought at this level and short-term neutral to slightly bearish.  The problems in Europe has pushed the dollar higher which has prevented the market from going higher.  With the Eur/USD making new lows it is hard to see a bounce in this pair yet.  Still sticking to the theory mentioned on Thursday that the market is heading lower back down to the 126-125 level. 

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