SPY still remains inside its channel pattern briefly breaking out it but never closing cleanly above it. The 140.65 level and the top of the channel remain tight resistance for SPY. What is interesting to look at it is how other assets specifically the Dollar, TLT (bonds) and the VIX have all moved to key support levels. These assets traditionally move in the opposite direction of the market and when moving up they put downward pressure on the market. From our technical knowledge we know assets tend to bounce at support, which means if these assets start to bounce it would put downward pressure on the market.
TLT: Is back near 124.33 its key support level support level. When TLT bounced off this level the market typically pulled back till TLT got to around the 130s. If TLT starts bouncing off this level again it could be an early warning sign for the market. As it shows people are moving into bonds a safer asset class. But if TLT breaks this level, that would mean a 119 and would be very bullish for the market as money moves out of bonds and into stocks.
The Dollar: This asset has lead the way for the market. So far the dollar falling meant a rising market. The dollar has fallen from its highs and helped push the market higher. Now it formed a little base at 82.29 and looks like it wants to bounce. It is can get back above 82.66 it would be bearish on the market,anything below 82.88 is bullish for the market.
VIX: While this asset doesn’t push the market lower or higher on each tick it does represent a census of market particpants. With it down so low at this point, there is a strong fearlessness in the market aka bullish sentiment. Over the past couple of years when VIX has got to this level it has represented a top, this can be seen in the chart below. The blue line is at 15.32 which is the close of VIX yesterday. It doesn’t meant the market falls the next day but it is a good indication that there is too much of a bullish sentiment in the market and a correction is coming.
