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SPY: Overheated

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We've seen a wild +25% rally since Oct 2023 in SPY. Honestly, I did not expect this move back in Oct, especially since we broke down below the MAs and they acted as resistance for 3 weeks. However, the market doesn't care about what we think it will do.

I don't like calling tops, but nothing goes straight up. With the crypto market building up hype as well, I think we are reaching a stage of local euphoria. Greed is pretty high right now.

IF this is a local top, THEN I think testing the previous ATH is the most likely scenario before continuing up.

We could see it drop to anywhere between 480-470 in the next month or so. This coincides with where the 21W EMA and 20W MA are. We also saw good volume around those prices in the last couple of years. The 0.236 fib retracement level sits at 472. Lastly, the RSI has reached the red Bollinger Band and is overbought at 77.

This is not financial advice. Trade at your own risk.

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The drop started later than I expected. Let's see how far down we go, we may just find support at the MAs. If we drop below the MAs, it is most likely that we move to 480-470.

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I've adjusted the fib retracement to match the actual top. I have also narrowed the target zone to match the new 0.236 level which sits at $483. We are at the MAs already, which may act as support. We also have the previous ATH at $480. After $480 would most likely bring us to the small support back in Jan 2024 at around $467.

My opinion is don't try to be cute by going long here. Wait it out, don't catch the falling knife, and wait for some signs of reversal. For now, this is a clear trend reversal, we just have to see how long it lasts.

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We might have a bounce off the MAs here. Looks like a lot of buyers stepping in. No conclusions yet, let's see how high this bounce goes.

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Just taking a look at the DXY, we are in a supply zone. The market is watching the DXY, especially with inflation looking stickier than expected and Middle East conflicts. If DXY can manage to get above the supply zone, I think equities will continue falling. We did have a major trendline break to the upside, so let's see if it continues up.

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SPY tried to sell off today, but came roaring back up intraday. On the daily time frame, this looks like a clear bounce off the MAs. I will wait until we see the weekly close in order to make a conclusion.

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In the past week or so we've seen SPY bounce off of the MAs, but I think it is beginning to roll over today. We can see risk-on assets such as BTC pushing further down, leading the charge.

What I think is important to note is that DXY held the supply zone I mentioned earlier, and seems to be preparing itself for its next leg up.

Be careful with going long on equities, I still think the short is in play.

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DXY has not been able to get above the supply zone, and is now testing the MAs as support. If we break down below the MAs, we are most likely not going to see a move down on equities.

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With the bounce off of MAs and strong move up, we might not see anymore downside from here. However, that isn't to say that this has turned bullish. I think staying neutral here is best. If we see SPY rollover before getting above the ATH, I think it would pose a great opportunity to go short. If we see new ATH, I think going bullish is the best course of action.

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We are fast approaching the previous ATH. Here is a short trade set up that I think is worth a try. Any closes above the previous ATH is SL. A more conservative TP is at the low we just saw at the MAs, but I do think we will see a lower low at 485 if we see a lower high.

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With the new ATH, I think going short is no longer a good idea. I conclude that this was just a simple bounce off of the MAs and we will be continuing up. I will end this thread here. Best of luck all!