Tuesday, February 23, 2016
Is the rally over? Notice how price has been repelled from yesterday's close, 194.78. Notice how the line drawn connecting previous low levels has not been penetrated.
This could mean that the downtrend will now continue. Some are calling for an apocalyptic drop into the 160s, some 30 points or 15% lower.
I'm not certain of that scenario. Two other obvious scenarios exist. The first is that the market finds support at the 20 day moving average, 189.90, which is rising. The second is a further drop down to the 185 level. That would build a reverse head-and-shoulders formation, using 195 as the neckline. Should that formation play out, the market could move up to the 206 level.
I currently have been selling SPY call credit spreads over the past few trading days so a downward move will enable those calls to expire worthless, leaving me with the credit amounts. Below 192 I am 100% successful. I also have some longer term puts, positioning myself for a continued move down. To be safe, I will probably establish call spreads either at 190-195 or 195-200 to take advantage of any up move, should that play out. That will be a game time decision when price hits the 190 level.