$SPY June 2011 Daily Chart
On 2011 May-June, as you can see on this chart that 100SMA has been that crucial support level as we’ve bounced at that level and started moving higher. And more importantly it broke above this tight downtrend channel (yellow dotted lines) which suggests very much bullish sentiment. But the candle stick gave us warning signal as it formed a hangman bearish reversal candle stick (5/31/11) but this candle stick being weakest reversal candle stick probably not many were paying attention. And then the next day, the real bears showed up and tanked this thing down lower for about 2 weeks and half.
What I am paying most attention is that how bullish the sentiment was before the sell off on June 1st 2011 and today we have very similar sentiment playing out as we have so much bullish sentiment showing in the chart and as many are ignoring minor details that could possibly ignite the ugliness.
$SPY Today Daily Chart
As you can see here also that 100SMA has been that crucial support and we’ve bounced from that and currently we have hangman candle stick formed. The difference today is that we still have not yet broken above this pivot level of $167.50. As long as bears protect this level, I will not go long on $SPY, however, we break above this level this week, I will be inclined to go long after a confirmation.
But what I am paying attention most is the sentiment of how bullish the chart is starting to tell us and how so many are getting on board with bullish analysis just like back in June 2011. I am not saying this thing must come down because it did back in June 2011, but what I am saying is I am not bullish JUST yet until we break above $167.50 because of how $SPY can give this false signals before the true sell off really happens.
This is NASDAQ Composite index and as you can see we are range bounce for a sometime now. I am paying attention to that hangman candle stick that we’ve formed last Friday. That’s a textbook bearish hangman candle stick that could lead NASDAQ to come down this week but again hangman is the weakest form of reversal candle stick but on 8/13/13 also formed hangman and we had about 4 days of bearish run. This time its bit more serious because this hangman is much bigger size (higher potency) and we are continue to having hard time to break above this resistance level.
$VIX Bollinger Bands Middle Line (20SMA)
On 6/19/13, we had a hammer candle right on that middle bbands line but last Friday, we’ve formed inverted hammer right on that middle line also. Until it bounces to the upside, we would not know how its going to play out but if you look at the trend itself you can see that we have been making higher lows. And now with inverted hammer right on that support, we can see that some resiliency on $VIX that it is refusing to come down and showing some reversal opportunity with that candle.
$SPX Old Support New ResistanceMay-June 2011 Daily Chart Today Daily Chart
I do think the big picture does favor the bulls and there is good chance that we can break higher this coming week. However, this is how the market is designed to wipe out traders/investors with these traps. We would not know if this thing is going to play out or not but like I said on this post, I wouldn’t want to be swept away by that sudden attack by the sellers. I personally think this is not the level to be overly confident in the market to the long side but rather be cautious until we break above $167.50 (on $SPY) for a confirmation.