As expected, the market rallied up to 1040 and stalled. However, I was looking for one more quick down move to the 1014-1016 area before it rallied. None the less I was sitting in cash waiting for the larger down move around the 7th. This will be hard to call exactly (what isn't by the way?), but I'm expecting a flat to slight up day tomorrow as the bulls most likely used up all their energy in this one thrust move up.
Volume was light again today with only 150 million shares traded on the SPY. Couple that with NO important economic news and you can see how easy it was to push the market higher. Tomorrow doesn't have any major news either, so I'm expecting them to try and hit the 1050 area. On the 60 minute spy chart the 50ma is at 1047, and on the daily spy chart the 20ma is at 1051. So, I'm looking to start loading up on shorts around that area.
As I said on my weekend post I believe the top is in on P2 and now any 2 day rally up should be shorted. Tomorrow should close flat to slightly up. That's 2 days folks! That means tomorrow is the day to take a short position. I thought Monday would be flat to down, and Tuesday and Wednesday would be the 2 up days. But, this isn't an exact science. It's off a day, so get ready to go short!
I don't expect the 1020 area to hold on the way down, so don't look to buy it. It might stall there intra-day, or even one day, but it should break and head down to the next major support at 998-1000. That would be a good place to expect a bounce as that will be the first hit of that level on the way down. However, with that said, I wouldn't go long off it unless you are a day trader. Swing traders should just go to cash, and look to get short again later.
Remember, I'm looking for a big down move all the way until option expiration on the 16th. So, it could play out just as simple as Wednesday to Friday down to 998-1000, up/flat on Monday, and more down until Friday the 16th. Bottom line... either stay short until the 16th, or go to cash at the first hit of 998-1000 area, wait for small bounce, and re-short for a further collapse.
How far? Next support level is 980, then 955. But, let's just take it one day at a time.