We have been talking over the last week about how the market has been in a slow grind higher on lower volume. That has continued to start the week this week with SPY on a mission to test the high made last week at 364.38.
The trouble on this latest move higher is the internals continue to show signs of weakness. That doesn’t mean an immediate reversal is in the works but it does show signs of a late stage move.
We continue to look for a pullback here which would better set us up for a sustainable move higher into the end of the year. We would love to see a pullback in to the 8 EMA on the SPY daily chart.
This would build energy for another leg higher. The 8 EMA is currently sitting at 356.79. Should that level break on the downside we would look for a move down to the 20 EMA which is at 350.11.
On the flip side, should we continue grinding here from these levels the all time high at 364.38 is the line in the sand on the upside. I would expect price to stall there unless we get a considerable pickup in volume.
We would love to see volume closer to 100 million shares traded on a daily basis on SPY but we have been 35-45 million shares short of that level the last week.
The financial and energy sectors have certainly taken the leadership role over the last week and a half which is what we have been talking about in the recent video recaps. Tech is taking a much deserved break at the moment while the other sectors do the heavy lifting.
We would be looking for more rotation over the next week or so back into tech.
We are in a historically strong time of the year as we go into the holiday season. The tricky part this year is the continued unknowns with the pandemic and the fact that markets are already very expensive going into the end of the year.
A lot of good news has already been priced in at this point. This is why we would love to see a pullback first before another push to the upside.
In our Midweek Options Update video we break down these key levels mentioned above on the index products in more detail. We have had requests for a pre market video update so we ended up doing our live video before the market opened this morning. That way you can see some of the things we do pre market to get ready for the trading day. We also talk through new trades setting up for us this week on XLF, XLE, SPY, IWM, and MSFT.
Take a look and let us know if you have any questions that we can help with.
We will be back on Friday for our weekly recap. Talk to you all then.