SPYing on 2016

• Posted by Greg Harmon
• on January 5th, 2016

One day is in the books and already the stock market looks like a disaster. A 1.4% drop in the SPDR S&P 500 Trust ($SPY) was the worst start to the year since forever, or at least a few years. Or maybe the bottom is in for the year. With a Hammer candle on that first day, retracing much of the early drop the first day ended on a strong note. Sentiment turned around and many are looking for a move higher from here.

But would you be really happy if the market gapped down every day and ran to 3% losses and then recovered half of that every day? I think not. So lets look at a few more days of data. The chart below shows the price action over the last 2 months. What stands out to me is the series of lower lows and lower highs. 3 for each now. This is how you define a downtrend. So what is so exciting about this?

There are good indications that the SPY may bounce. The Hammer brought the price back into the Bollinger Bands® but it is still resting at the lower band. It does not like to stay there. The volume was strong into the close as well. But until the price can move above this downtrending channel or wedge, whatever it is, and make a higher high is is all just bouncing around in a downtrend. The bogey is now set at 208 to prove a move higher.

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