From a simple technical standpoint, we’ve seen a number of recent breakdowns in the SPY related to Fibonacci Price Theory and Price Gap Theory. One of the most critical components of the recent 60+ days price activity in the SPY is the failed new high on October 12. This failed attempt to rally above the previous high price level, near 358.82, suggests a broader market price decline has setup (a downtrend).
SPY 240 MINUTE CHART
After the failed new high peak on October 12, a series of new downside price gaps can be seen in the SPY chart below as price accelerated downward. These unfilled price gaps represent price acceleration to the downside and will eventually exhaust – creating a new momentum base/bottom.
I believe the support level near 319.85 is a critical level for price going forward. The downward price trend suggests this 319.85 level could be targeted very quickly. The November 3 election day, and the post-election price volatility, could put this critical price support level near the top of everyone’s charts over the next few days.
SPY DAILY CHART
My researchers and I believe the upside “island price level” that has set up on November 2 is likely to prompt a downward price move near resistance at 330.25. This type of upward gapping price “island” is indicative of a Three River Evening Star type of setup – which is typically indicative of major resistance and suggests further downside price action may unfold.
You can clearly see the Doji bar on the right side of the following Daily SPY chart below the most recent downside price gap near 333.10. The rejection of the rally in price on this bar suggests a real battle for control of trend is taking place. When a Doji forms above the previous candle’s real body, it suggests key resistance is found near the real body of the Doji.
Our researchers believe broader market weakness may become a real factor after the elections pushing price lower to retest the 319.85 support level. Skilled traders should be warned that the 319.85 level represents a key low price level that created the Monthly Dark Cloud Cover pattern we have been suggesting all readers pay attention to. If price blows below this 319.85 level, we may enter a new phase of downward price trending.
Ultimately, we believe the markets will attempt to find support and stage another attempt at new all-time highs – but that may not happen before a wash-out low price rotation takes place after the US elections and after the new COVID-19 issues subside. Right now, traders need to stay very cautious of any potential breakdown risks.
Chief Market Strategist