Diary of a Financier

SPY update: Breakdown fulfills bearish setup

In Capital Markets on Mon 13 Jan 2014 at 18:39

As I warned in my note last week, SPY rallied up to its 15min bull flagpole resistance ~$184.5, where it failed to breach and therefore affirmed the complex fulcrum top.  This classic, bearish pattern asserted itself today with a cascading -1.26% rout by the close:

SPY 15min

SPY 15min

Looking forward, SPY closed resting upon a steep daily rising wedge’s trendline support (>$182).  The yoke of bear divergenceSPY daily in its momentum (MACD) and MFI seems too powerful for SPY to overcome right now.

While SPY should get a bounce off these oversold levels tomorrow, all of the multidisciplinary signals I can find suggest this may be the start of a correction.  SPX has experienced only a -1.6% drawdown thus far, with December 31 (coincidentally?) marking the high.

Our portfolio is still overweight its 60/40 benchmark at 67/27/6 (stocks/bonds/cash), with beta up at 0.90 vs 0.76 benchmark, and sigma 1.00 vs 0.56.

Worth noting that Volatility ($VIX) was trading cheap most of the morning–even as the VIX weekly (1998-2014)selloff started gaining strength.  While VIX ended the day +9.4% @ 13.28, it remains cheap by any historical comparison.  We’re evaluating a tactical $VXX position to assist us during the paring of our risk exposures.  It’s something we’ll engage if SPY gets snagged on $184 resistance.

More to come…

–Romeo

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  1. […] sell signal shortly thereafter.  Given that preface, a bearish technical setup managed to develop in SPY’s chart fractals last […]

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