We’re in an interesting spot here, no matter which side you find yourself on. Both the bulls and bears have reason to believe they’re going to win this one, so let’s take a brief look at the arguments of each.
From the bullish perspective, we’ve just carved out a higher (incremental) low compared to the early-August low, which was confirmed by a higher high this week (including multiple closes above the mid-August bounce high). We’re now pulling back after a sizeable short-term run, possibly to fill the gap from 8/29. A change of direction begins with the creation of a higher low and higher high, and we’ve seen both of those get created. The worst is behind us.
Here’s the SPY daily chart with notes for the bullish case:
From the bearish perspective, this is a low-level (albeit wide) counter-trend consolidation following a major decline. Advances have not seen meaningful follow through…the 8/9 to 8/15 bounce was met with nearly a complete retracement, and the bounce which completed August is again coming under some pressure here. This correction is just getting started.
Here’s the SPY daily chart with notes for the bearish case:
Charts don’t lie, but at times like this it’s all about perspective. The next direction is in the eye of the beholder, and that’s exactly what makes a market. What’s your perspective?
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