- Linear Regression Slope has started to turn down. Fair Volatility Estimate has started to move up and Stochastic Oscillator has started to turn down as well. So my technical indicators are signalling the rising probability of a price correction in SPY.
-However, SPY is still in a very strong uptrend, and we don't want to get off this ride. I'm moving my profit/stop level to 116.6 and would consider getting long again around 115.0
- This SPY rally continues to amaze, but I'm watching the US Dollar closely. The rally in the stock market coincided with the fall in the US Dollar, since September 1, as reflected by the prices of UUP (Power Shares DB US Dollar Index Bullish ETF). I'm noticing the lows in the UUP creep up for the past 3 consecutive days, indicating a good probability of a short-term dollar strength.
- In hindsight, 113.9 may have been too tight of a profit/stop to take off 1/2 our position, but that's what my trading rules suggested. SPY has remained very strong, longer than most investors would have anticipated. My feeling is that if you have riden this tremendous run from start of September, now may be a good time to take some profits, but I would still maintain a bullish position.
- Linear Regression Slope, FVE, and Stochastic Oscillator indicators are still bullish, while surprisingly, the Volatility Signal indicator remains in bearish territory. I'm moving up my 2nd profit/stop level to 112.8.
-The FVE indicator has remained in a downtrend since 8/25, correctly instructing us not to have been long volatility all this time.
- SPY bounced off near trendline support this morning. All indicators are still in bullish territory, except for Volatility Signal. However, all indicators are a little "off" because of 0.60 ex-dividend on 9/17. Nevertheless, it is only natural that SPY cannot continue its torrid pace of ascent.
- Therefore, I'd suggest moving profit stop up to 113.18 and 111.8. If SPY is to continue rising, I'd have to think financials and other laggards would have to start rising.
- FVE is 18.8 and implied volatility on SPY is 20. I'd be neutral vol at this moment because the probability of a price correction is getting higher.
- Durable Goods Orders and German Business Sentiment helped boost the market in early trade. This market is very strong based on the speed and duration of ascent from the most recent bottom of 104.5. Just look at AAPL, AMZN, NFLX, FCX that are leading the market.
- Having said that, yesterday's low of 112.18 gives us a reference to draw a trendline, and I would use this trendline as my first profit stop/limit. Second profit stop/limit is being raised to 111.9.
- Fair Value Estimate Indicator is 19.6 and SPY IV which was creeping higher last few days is now at 19. FVE indicator is, however, above its moving average. Whether this continues in the next few days is uncertain, but should prices break below profit stop levels, we may want consider going short at those levels as well.
