Last updated on December 8th, 2020
Another week in the books and another week of new all time market highs. Given the news cycle world wide right now with the pandemic numbers sky rocketing and more shut downs being announced it’s amazing how well this market has hung in there.
We are now seeing some extreme overbought conditions in many areas of this market. While that doesn’t mean price has to reverse immediately, it does mean a more cautious approach is a smart approach.
Markets Like To Surprise
Historically the market likes to surprise as many people as possible. When the boat gets loaded in one direction, the market likes to throw everyone a curve. In this case the level of complacency in this market is near an all time high. No one is worried about the downside at this point.
If the market wanted to catch everyone off sides now is the time to do it.
SPY did close the week on this high tick of the week which is also a new all time high at 369.85. Above this level and we are in uncharted territory. We would be looking at areas of potential resistance at the big round numbers like 370, 371, and 372. The .50 levels can also be areas to look at for resistance.
This would have us also looking at 370.50, 371.50 and 372.50.
In order for us to get anything going on the downside we need SPY to break below the 8 EMA on the daily chart. That level has been tested a few times the last few weeks and each time it has held as support leading to another wave higher.
The 8 EMA closed the week at 365.05. That is our line in the sand on the downside if we are going to get the much needed pullback that we have been talking about.
Give Us A Pullback
A pullback here over the next 3-7 days would help give a reset for another push higher. We are still expecting the market higher into the end of the year but a move lower first would be key. A big reason the pullback is needed is due to the lack of volume over the last few weeks.
SPY is again struggling to hit 50 million shares traded on a daily basis. We need this number back up closer to 100 million shares. In order for that to happen we need to see some selling.
In this week’s Options Recap Video we cover some of the key SPY support and resistance levels mentioned above in more detail. We talk through levels that we are keeping an eye on going into next week.
We also outline some of the sectors and stocks that are on our radar for new trades next week. Take a look and let us know if you have any questions that we can help with. We will be back on Wednesday for our next midweek recap. Mike@netpicks.com