If the SPY Just Struck A Secondary High, What Is the Projection?
The SPY did something Friday it has not done since December 11.
It turned its 3 Day Chart down. And, just like December 11, it did so on a test of its rising 20 day moving average.
A test of the rising 20 day moving average is my Holy Grail buy signal.
So the SPY has a bullish setup on the table, but there are reasons it may not be able to capitalize on it.
Allow me to explain.
The SPY struck a new all time high on Wednesday, leaving an outside up day on Fed Day.
However, it reversed decisively the next day, leaving a Reversal of a Reversal, or what I call a Keyser Soze.
Fast moves come from false moves and the SPY followed through to the downside on Friday, testing its 20 day m.a. and turning its 3 Day Chart down for the first time in 3 months.
If this potentially bullish setup does not see upside traction, the presumption is a decline to the SPY 50 day line.
My expectation is a drop to the 50 day line now at 385.37 does not hold.
This is because we have already seen two tests/undercuts of the 50 day m.a. — Jan 29 and March 4.
If a 3rd drive to the 50 day plays out, the likelihood is it will buckle in line with the early March drop, eliciting a test of the Line of Least Resistance for 2021, the ruling trendline for 2021.
This line resides at 375 SPY. It is a well-defined 3 point trendline.
The takeaway is that there is a strong likelihood this 3 point trendline will break if attacked because you don’t typically see quadruple bottoms.
The 4th time through usually seals the deal.
This is the essence of my Rule of 4 Sell strategy.
If a Rule of 4 Sell triggers, it opens the door to the 200 day moving average currently at 351.
The 200 day has not been tested since late June. It is overdue.
Given that last week's new all time high quickly knifed back below the prior February 16 high, we have to consider the idea that we are staring a secondary high in the face.
This is exemplified by the weekly Soup Nazi sell signal.
This is a new 20 week high followed by a stab back below the prior high within a 20 bar look back.
In other words, no soup for those chasing the breakout.
Underpinning the idea of a secondary high being struck last week at 298 SPY is that 398 squares-out/is 90 degrees from the prior February 16 all-time high.
Red is 398
Blue is Feb 16
In sum, if a short-term rally plays out and then Friday’s 3 Day Chart low is violated, it points the way lower.
Last week, I walked through how I arrived at the 4000 SPX projection given in this space on March 23, 2020.
Last week, the SPX struck 3983.87 before reversing.
Caution is warranted.
99.999% of traders have never even seen the Square of 9... let alone understand its potential.
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