SPY Watch

The exchange-traded fund that tracks the S&P 500 (SPY) moved into bull phase on the macd, trading Person's Proprietary Signal by five days but preceding the parabolic sar, which remains bearish. The big picture has the makings of head-and-shoulders pattern.

	trend	adx	psar	pps	macd	macd trend	sto	sto trend
SPY $109.90

At 1:20 p.m. Eastern

SPY moved to a higher high this morning but retreated back into the range of the last four trading days in a net move down intra-day.

The macd bull signal coincides with the faster macd moving average crossing above thw sloer, adding weight to the bullishness.

The signal is counter to the near-term downtrend that carried the etf down 14.5%, from $122.12 on April 26 to $104.38 on May 25. I tend to prefer trading with the trend. This signal is counter-trend.

However, SPY has shown persistence with its recent macd signals. The bear phase prior to the today's switch lasted 26 trading days. The bull phase before that was similarly long-lived.

More broadly, SPY has shown a large zig and a small zag on the four-year chart. It peaks at $157.52 on Oct. 12, 2007, declined to $67.10 on Aug. 11, 2008, and retraced about 60% of that decline before plummeting.

In terms of big price patterns, SPY can be seen as trading a head-and-shoulders pattern, with a shoulder top at $115 on Jan. 14, a head at $122 on April 26, and another should yet to appear. The shoulder line is around $104.50 (give or take 20¢). That would suggest a decline down to $94 once the pattern is complete.

Important Caveat: Heads-and-shoulder patterns, like triangles and other beasts in the chartists zoo, are Tinkerbell indicators. That means that to work, we all must believe in their efficacy. If we cease to believe, then the patterns fall apart and don't work.

A price pattern on an issue with such high visibility -- and there is none higher than SPY -- is especially prone to Tinkerbell Belief Failure Syndrome.

Reversal Levels

• $122.12, +11.1%
• $117.62, +7.0%
• $115.22, +4.8%
• $111.06, +1.1%
• $109.90 <== You are here.
• $107.37, -2.3%

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Abbreviations:

• psar - Parabolic Stop and Reverse
• adx - Average Directional Index
• pps - Person's Proprietary Signal
• ma20 - 20-day moving average
• macd - Moving Average Convergence-Divergence
• sto - Fast Stochastic

About the glance: The colors indicate the state of each signal.

• trend: Determined by the 5-day moving average, green for up, red for down, yellow for sideways
• adx: orange for above 30-up, blue for 20-down, purple for in the middle. Red is most prone to whipsaws
• psar, pps, macd: green for bull mode, red for bear
• sto: green for overbought, red for oversold, yellow for the neutral zone.

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Tim Bovee, Private Trader tracks the trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment. No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.