Can We Rely on SPY at Its Fresh All-Time High?

by Serge Berger | October 18, 2013 10:33 am

We have a (temporary) solution to the debt ceiling, and the government is open again, too. While some people celebrated by watching the re-opened Panda Cam[1], Wall Street’s hurrah was a 70-basis-point rally for the S&P 500 — and for traders’ purposes, the SPDR S&P 500 ETF (SPY[2]) — that sent the index to fresh all-time closing highs.

What’s interesting to note here is that both the anticipation of a solution as well as the actual solution were both applauded by the market. The SPY ETF rallied 3.9% from Thursday, Oct. 10, through Wednesday of this week, then tacked on even more yesterday.

So, good news is good news … but how will the market take bad news?

Given the underlying strength in the sectors of the S&P 500 and the levels it has reached from a technical perspective, the SPY should have more upside from here. The question is how much and how long.

To get a better estimate, let’s look at a chart of the SPY ETF that looks back to November 2012, which is where this latest rally in the S&P 500 began.

spy 11 month Can We Rely on SPY at Its Fresh All Time High?
Click to Enlarge

It’s no secret that every single dip in the S&P 500 in 2013 has been bought with a vengeance, and last week’s low around $164.50 on the SPY was no different. As we came into last week, the media finally began to circle the $167 area on the SPY (or the 1660 area on the S&P 500) as important technical support, as that was where the November 2012 uptrend sat.

While I had this level circled for a couple of weeks on my charts, as soon as I saw that the media had gotten its grip around the same level, I immediately discounted its importance.

Sure enough, the SPY ETF dipped marginally below $167 to $164.50 just to stop out the longs and get the bears all juiced up … before flipping right back to bull mode the next day on Oct. 10.

Such is the tale of bull markets. Dips get bought just when bears see a glimpse of hope, and this continues to be the case for the S&P 500.

In terms of upside targets, the S&P 500 looks to have near-term upside toward the 1740-1750 area and the SPY up toward the $174.80-$177.80 area. Traders with longer time frames than a couple of weeks could simply operate with a trailing stop on the SPY, as well as a worst-case stop at $168.

Serge Berger is the head trader and investment strategist for The Steady Trader[3]. Sign up for his free Weekly Market Outlook Video here[4]. As of this writing, he did not hold a position in any of the aforementioned securities.

Endnotes:
  1. Panda Cam: http://nationalzoo.si.edu/animals/webcams/giant-panda.cfm
  2. SPY: http://studio-5.financialcontent.com/investplace/quote?Symbol=SPY
  3. The Steady Trader: http://thesteadytrader.com/
  4. free Weekly Market Outlook Video here: http://www2.marketfy.com/l/15492/2013-05-06/4sf47

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