Stalemate

On the daily SPY chart below two areas of resistance are highlighted. The lower pink circle represents the area of immediate resistance that the SPY is currently struggling with. The darker red circle above represents the strongest area of resistance represented by the falling long term trend line and the convergence of both the simple 200-day average and the 200-day EMA.

As of yesterday's close, we would argue that there is about a 50/50 chance that prices could roll over from the current area having failed at immediate resistance or that prices could shoot higher and run into the more serious level of resistance.

If prices can somehow break through the immediate level of resistance (remember, there is a 50% chance here that they will) probabilities of a subsequent failure at the stronger area of overhead resistance run somewhere in the 90% range.

In other words, at this time, probabilities of putting on a new trade are not very good. 50/50 is a coin toss or a crap shoot; a gamble. However, if prices can manage to experience a panic buy into major overhead resistance then an incredibly high probability short trade can be had.

One way to handle this stalemate we are currently at is to recognize the fact that major resistance is not far away. So, closing long positions and putting on partial short positions makes some sense here. Then, if prices do happen to shoot higher into strong resistance, the small short positions can be added to as you average into this trade.

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Outlook:

The outlook for this market hasn't changed. Ideally prices will continue slightly higher this week allowing prices to drift into the extremes of the red zone to tag the falling trend line. Last week we noted this line was at $141.50, but given the fact that it is indeed falling, we would look for prices to tag the trend at roughly $140.50-$141.00 if overzealous bulls continue to have their way for another day or two.

*Risk of opening new short positions is now decreased and should prices run up to the $140.50-$141.00, an extremely high probability short can be put on.