The market bounce is providing a potential opportunity for those who care to, to re-short. As you may know I covered a short on SPY on the recent decline and have been looking to re-enter it. The S&P 500 bounce target has been 1950 to 1960, but let’s refine the situation for the SPY.
Key resistance is noted, but in the US stock market it seems that these back tests often test the nerves of the bears. It is a market that tends to bang on extremes and whether or not that is due to the black boxes’ and HFT’s algos or not is irrelevant. Things always seem to press the limits, so please keep that in mind.
And so with that we offer a look at the first level of resistance, where those with risk tolerance might want to enter short. The problem here is that the market could actually make a marginal new high and still be destined for a bearish outcome. What after all is a bounce from 194 to 199 to this market? So an ultimate stop loss might have to be placed above the top dotted trend line, well into new highs.
MACD and RSI remain bearish and lateral resistance below 196 could indeed halt the SPY. But the gap could fill first. We might wait for a burst higher and a gap fill for a lower risk opportunity. A gap fill and reversal would be a nice bull trap.
Short Target (more risky): 195.50 to 196
Stop Loss: New highs, above the top dotted trend line
Downside Target: 180 (or any profitable point above, as it cannot be stressed strongly enough that profit taking would be your responsibility and I take profits when I am fortunate enough to get them, often well below targets)
Short Target (less risky): 198
Stop Loss: As suits individual risk tolerance at new highs
Downside Target: Same as above