SPY holds range support
Despite a gap down and sharp decline on Thursday, the S&P 500 ETF (SPY) firmed on Friday and remains in the middle of its 6-week trading range. This means there is no change in the medium-term trend (up). SPY moved to a new reaction high in mid November and then embarked on a 6-week consolidation. It is important to realize that the early November gains are holding. SPY surged from 103 to 111 the first two weeks of November and closed at 110.21 on Friday. With SPY still very close to its 2009 high, there are no real signs of weakness on this chart. Sure, Thursday's gap from resistance was negative, but SPY remains above its first significant support zone around 108. Only downside follow through below the late November low would warrant a reassessment of the uptrend here. The bottom indicator shows RSI firming near 50. Notice that the 40-50 zone has marked RSI support since mid August.
The 30-minute chart shows SPY trading in the middle of its six week trading range. Even though the ETF moved sharply lower on Thursday, it managed to find support near the 62% retracement mark and bounce in the afternoon on Friday. I was especially impressed with relative strength in the technology sector. A little resistance level formed around 110.3 over the last two days. In fact, a two day 10-minute bar chart shows an inverse head-and-shoulders taking shape Thursday-Friday. A breakout at 110.3 would be positive.
Thin holiday trading, a range bound market and some key economic releases could make trading hazardous this week (and next). This is as good a period as any to simply take some time off and enjoy the holidays. For the hardcore out there, there are three items to keep in mind this week. First, the so-called Santa Claus rally period begins today so seasonality favors the bulls. Second, homebuilders will be in focus on Tuesday with the Existing Home Sales report and Wednesday with the New Home Sales report. Third, the NYSE and the Nasdaq will close early on December 24th (1PM ET). Initial Jobless Claims and Durable Goods Orders will be reported before the open (8:30 AM ET) and these reports could influence a thin Christmas-eve market.
