SPY
Price: 138.16

SMA
50: 135.28
200: 113.92

BB
Hi: 147.90
Mid: 140.68
Lo: 133.45
Action: Pierced mid BB, large red candlestick resting under mid BB

RSI: 47.79, coming down from 70
MACD: 2.121, recent crossover, coming down
STO: 57.01, 40.06 falling with increasing spreads between %K and %D

Other warning signals:
$VIX/VXV: 0.927 Falling back into channel, STO suggesting bearish crossover this week, RSI at common high peak, falling. Most "panics" had to jump hard and fast to break this channel. See Chart 2
$VIX: 18.61, below trendline, STO extended, well below 25 "panic" marker, MACD negative but rising, RSI above 50, all previous "panics", started below RSI 50. See Chart 3

Comments: Market is at a critical point on daily chart, but not on a weekly chart. Volatility indicators suggest the market is more stressed, but not in a panic. The VIX based oscillators do not suggest there is much more room to run on volatility for now, and should top off this week or perhaps next week. Last large red candlestick coming from top BB to hug the underside of the mid BB, with a long piercing top wick was Feb 2010, which reversed marking a ST Bottom.

Technical Analysis: Weekly SPY charts are generally ugly, but oscillators are dipping below the 50% markers, suggesting the R/R ratio is starting to improve, but a breakdown at this level could still lead to a 3.5% loss 138.16 ->133.45. There is absolutely nothing on the weekly SPY chart suggesting a further breakdown than the $133 level as a worst case scenario should the sell-off continue past this week. It should be noted that SPY RSI has only touched the 30 "Bottom Signal" once since late '09, but has leveled out around 40-ish repeatedly. 

$VIX indicators however show a more bullish scenario, suggesting that short term fear is backing off. While VIX/VXV ratio technically still above the .91 level, it is a level one warning out of three. From history, this level should continue downward, once touching this envelope from above, or may make a small 1 week movement upwards, but then back off afterwards. $VIX does not appear to have the momentum necessary to carry the SPY into a .382 retracement selloff. 

Suggestions: The weekly charts offer a mixed bag of results. In general more conservative players should remain out of the market, while more aggressive players can start to initiate long positions with a fairly safe risk/reward. I would NOT suggest entering short positions against the market based on the weekly charts. This means that IF the daily charts show anything different regarding shorts, you should be thinking about 1-3 day plays and nothing more than that. Being hard to time, I would advise at this point conserving cash and starting to look at dips for potential longs.

Again, if the bottom weekly BB is not touched by price, which I predict it will not, the market will not have gotten this out of its system. This dip satisfied the price's need to touch the 200 day every so often, but it will not have satisfied the weekly charts need to touch the bot BB or the 200 week. This will likely set-up a breakdown as price starts to climb back to old highs.

Understand that while we are advocating a short term bull run, from now until the market performs a full .382 correction to the middle 110's, the market should remain somewhat unpredictable and violent in its movements. This could be weeks or a couple months, but it should not likely be too far displaced.

Chart 1 - Weekly SPY w/ RSI, MACD, STO

 

Chart 2 -VIX/VXV Ratio w/ RSI, MACD, STO

Chart 3 - Weekly $VIX w/ RSI, MACD, STO




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