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Big Move in Stock Market Imminent

|Includes: SPDR S&P 500 Trust ETF (SPY), SPY

February 26, 2010

This week has seen huge swings in the stock market, with most major indexes marking better than 1% intra-day moves each day. The S&P 500 Index (SPX) and it’s tracking ETF the S&P Deposit Receipts (NYSE: SPY) have had a sell off Tuesday, followed by a rally Wednesday, followed by a sell off Thursday that reversed intra-day and finished almost unchanged.

If those on the sidelines think the experts are in the know, they certainly could not be right with such huge swings, in opposite directions, day after day.

In our work we see volatility as the precursor to break out moves either to the upside or downside.

Last week we wrote that; “both the SPX and SPY closed just below the critical Fib 61.8% retracement level for this correction. This typically marks the do-or-die point for rallies. A close above leads to further advances and a reversal leads to a resumption of the correction.”

We have not had the reversal, and the stock market remains just below this critical resistance level. For the SPX the critical retracement level is at 1109.98 and for the SPY the critical retracement level is at $111.10.

Thursday’s huge intra-day loss, that reversed and closed almost unchanged for the day, points to more strength to the upside ahead. Any strength should push these indexes above the critical resistance levels. Thursday’s mid-day reversal to the upside was on a day when bad news dominated the markets. That is bullish.

If those levels are surpassed, look for a run to, and a test of, the January highs.

Disclosure: The ( ETF Timing Strategy has a position in the S&P 500 SPDRS.