S&P 500, as represented by S&P 500 SPDR ETF (SPY) continues to move higher within a wedge since the start of 2013. 2014 has seen a lot more consolidation and hesitation around $190 where it has stalled since early March.
There is no reason to doubt the rally yet. It is have proven stubborn and we aren’t yet seeing escalating volume which would indicate a major top.
Wedge support intersects near $184.50, so a drop below that may provide early warning of a deeper correction, but is an unreliable signal. A drop below the April low at $181.31 is better evidence the buyers are struggling to keep the price up.
If we do drop below $181.31, I would want to see support between $176.75 and $175.50 hold. If it does the outlook remains bullish. If it drops through there and the February low at $173.71 then I am no longer considering long positions.
On the flip side. SPY has not closed above $190, if it does, and we see follow through, the next up leg has likely begun. Based on the expanding range since March, the price has been creating slightly higher highs and then reversing, so trading a breakout isn’t advised. If the market is propelled above $190, and can close above on a positive day, the next target is $198.50.
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Cory Mitchell, CMT