Let’s push all of the headlines aside for a moment. Is the SPDR S&P 500 ETF Trust (NYSEARCA: SPY) in the process of making a double top here? This is an email question I received this weekend and it is worth pondering. First take a look at the technical analysis price chart for SPY.
This year SPY had a fast rally to start the year that took it above 330. It then dipped back down to its 50-day moving average. Last week it bounced back up off of that support level to make a minor new high and then stalled out Friday going into the close after its daily stochastics indicator became overbought.
This is what is worrying people. At the same time the DOW Transportation average is badly lagging the DOW-30 and the S&P 500. One thing though is that at this moment there are not a lot of individual stocks that have broken down so far this year to form new downtrends. One exception are shares of United Parcel Service (NYSE: UPS). They got smashed in January and look like they are putting on a weak bounce before going lower again.
UPS stock has fallen not only below its 50-day moving average, but is now trading its 200-day moving average to become a broken stock. The thing is if the S&P 500 and SPY were making a major top now there would be more stocks with broken charts inside the S&P 500 like UPS, but there just aren’t many like that at the moment. So I do not think that the S&P 500 is making a double top. If it is going to top this year it will take time as more individual stocks will have to break down as part of that process. That’s how negative divergences form in the stock market and it typically takes months to happen.
Personally I am not interested in trying to short or bet against the US stock market unless I think it is setup to fall more than 15%. Right now it just isn’t. That doesn’t mean I’m that excited about the idea of putting new money to work in it now either though. It’s likely to retest that 50-day moving average in the next few weeks. Really I’m eyeing things that are more oversold and beaten down outside the SPY as I talked about in my private Power Investor update this weekend.
Last week I had a good discussion with David Skarica of addictedtoprofits.net about the action in the stock market. If you missed it just listen here.