Why The S&P 500 (SPY) May Decline To This Major Support Level

After remaining extended for nearly a month, the SPDR S&P 500 ETF (SPY) is in the process of unwinding overbought conditions.

Last week, the S&P 500 lost 3.6 percent, in the process losing both its 100- and 200-day moving averages. As well, shorter-term averages have rolled over.

Before the latest pullback began, between the September 29th low (186.93) and the November 2nd high (211.66), the S&P 500 ETF (SPY) rallied 13-plus percent. That is in a month – clearly an unsustainable pace!

Viewed from this perspective, the ongoing sell-off for stocks is normal – even healthy, as weak hands get shaken out.

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That said, the stock market rally stopped at an important juncture. The November 2nd high was one of several times since May this year that the S&P 500 tried but failed at 211-212 (see chart 1 below).

S&P 500 ETF (SPY) Chart

spy sp 500 etf chart technical support price levels november 16

Last week’s red candle followed six straight up weeks.

During the market rally, central-bank action/rhetoric – more easing (People’s Bank of China) and hints of more stimulus (European Central Bank) – helped. As did short-covering.

Short interest on SPY dropped 36 percent in the month and a half ended October 30th, and is at the lowest since the end of April (see chart 2 below).

S&P 500 ETF (SPY) Short Interest

spy short interest november stock market chart

Flows never cooperated.


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