Levels to be Fearful: The Prequel SPY

110.41, 109.15, 108.09, 107.84 and 107.01

Tomorrow is month end for the market and so there are many different views of the market that will be coming together, each painting a picture of the past and trying to glean an insight into the future. Using the S&P 500 SPDR's, ticker: SPY as a proxy for the market and a tool to guide us through the process, let's take a closer look at what could scare and how likely it is to happen.

SPY Monthly Chart


The monthly chart shows 3 levels that if the SPY closes below them could cause some downside panic. The first is 108.09. This is a 50% retracement of the movement from the October 2003 lows to the October 2008 highs. The second is 107.84. Below this level SPY would no longer print a bullish engulfing candle as it looks today, (where the body of this candle totally engulfs the preceding candle and closes higher - this is a bullish signal). Last, the 107.01 level where it would give up the 100 month SMA.

SPY Weekly Chart


On the weekly chart there are two additional levels that could be party poopers. The first is 110.41. This would create both a lower close than the high of the previous week and a shooting star pattern that is bearish. The second is 109.15, the 50 week SMA.

Are these levels 110.41, 109.15, 108.09, 107.84 and 107.01 even possible? Lets look at the daily and hourly charts for clues.

SPY Daily Chart


The daily chart printed a bearish engulfing candle today signaling a bearish trend to come already. Also below the 110 area that it is near and tested today the next level of support is the area where the 20 and 50 SMA's are converging at 107.98-108.21. This makes the first 3 of the 5 levels possible.

SPY Hourly Chart


The hourly chart shows a convergence of the 50 hour SMA and the down trend line at 109.19. Below that the 200 hour SMA at 107.95 provides further support. You can also see several other support and resistance areas along the way and lower. This chart also confirms the possibility of the first 3 levels and show what it would take for the last 2 to occur.

First, let me state that I am not predicting doom and gloom, only showing that there are downside scenarios to protect against, as illustrated from the technical analysis of the charts. These are real possibilities, though and you should be prepared for what you will do if they occur.

Good luck tomorrow!