SPY remains on the canvas

After two long red candlesticks and a sharp decline last week, the S&P 500 ETF (SPY) stalled the last two days. A small black candlestick formed on Monday and a failed rally candlestick formed on Tuesday. I call this a failed rally candlestick because the ETF hit 110.47 on the intraday high, but failed to hold these gains and closed at 109.31, well off the high. SPY closed near the low of the day. In addition, SPY closed near the open and had little to show for a full day of trading. Overall, the ETF is still stalling just above key support. 5-day RSI is still oversold as it remains below 30. Look for SPY to close above the Monday-Tuesday high and 5-day RSI to close above 30 to signal the start of an oversold bounce.

On the 30-minute chart, SPY fell from 115 to 109 and then consolidated between 109 and 110.5. The prior decline was like a boxer being knocked to the canvas. The referee is currently counting as the boxer tries to shake off the punches. Tuesday's rally was an attempt to get up, but the boxer fell back down. To stand and fight another day, the SPY needs to get above 110.5 and stay up. Otherwise, it could be down for the count. Yesterday's late sell off was not a good sign. A move below 109 would signal a continuation lower and target further weakness towards the late November lows. There will also be a lot of news flow hitting the market in the coming days. First, earnings season remains in full swing. Second, Obama delivers the State of the Union address on Wednesday night. Third, the Senate is expected to vote Thursday on the Bernanke confirmation.