The SPY Is NOT Extended and May NEVER Pull Back

• Posted by Greg Harmon
• on July 2nd, 2014

The idea that the SPDR S&P 500 ($SPY) is overbought is absurd if you look at it from anything longer than a day traders perspective. Extended? Let’s get serious. It may be boring to sit and watch the index go up constantly, but that does not make it overbought or extended. And it also does not make it likely to correct, just because it has not for a long time. My Friend Ryan Detrick points out in the chart below that the market does not often wait a long time between 1% moves.

But boatloads of data can be viewed many ways. The common view will be that the vast majority of the time a 1% move occurs in less than 50 days. So this streak is bound to end soon. But looking at how the probabilities for extremes can play out in actuality, there are 2 instances where the streak has gone 3X further than the current one. It may never pullback.

Take a look at the chart of the weekly price above. The red rectangle shows the mechanics of that 1% range. The SPY has moved in a 15 point channel higher since November 2012. But it has been a steady plodding. So steady that you can draw that rectangle. And look at the Simple Moving Averages. They are rising in a parallel fashion alongside the price channel. There is strength in this price action. Strength moving higher. Not fast paced leaps and periods of consolidation. Just a strong steady rise. It may be boring, but it is relentless.

Get my book, Trading Options: Using Technical Analysis to Design Winning Options Trades.

____________________________________________________________________________________________________

Want to learn more about Dragonfly Capital Views?
Dragonfly Capital Views Performance Through June 2014 Expiry and sign up here

If you like what you see above sign up for deeper analysis and trading strategy by using the Get Premium button above. As always you can see details of individual charts and more on my StockTwits page.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

blog comments powered by Disqus