On this week's episode of Sector Spotlight, I discussed the chart of SPY, as it is approaching an important support area between 420-425. The updated version of this chart is printed above and, as you can see, the market is getting closer and closer to this important support area. A break lower will most likely trigger an acceleration lower. I am conservatively watching 420 as the trigger. But breaking 424, the October low, will already be a fair warning shot.
The fact that a clear downtrend has already been established above this level only adds to the strength of the move. Lower highs and lower lows are clearly in place, so dipping below 420 will only ignite a new leg in an already existing downtrend.
I am not in the camp of people who see a H&S reversal formation in this chart. Nevertheless, the downward risk is substantial. I am watching support levels around 400 and 390 initially.
--Julius
Julius de Kempenaer
Senior Technical Analyst, StockCharts.com
Creator, Relative Rotation Graphs
Founder, RRG Research
Host of: Sector Spotlight
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