Don Worden writes today:
The only fly in the ointment today was the Dominant Price-Volume Relationship. Following two market days with no Dominant Relationship, today's session was dominated by 1163 stocks with Price-Up and Volume-Down. This is a bearish relationship in any kind of market. Today's reading implies that there is low and diminishing support underlying today's advance.
Meanwhile, the SPY finds itself trading in a rising wedge pattern. While it has seemingly breeched its 200-day average, it will run into upper resistance on the wedge pattern just slightly over $143. This fits nicely into the theory that this rally will end following a false 200-day average breakout.
Why do we expect a false breakout here?
First and foremost is the fact that the VIX is trading back at lows not achieved since October when the market rolled over. A low VIX level betrays complacency, and given the fact that we remain in a primary downtrend, a complacent rally into resistance does not inspire a great deal of confidence.
In addition, volume decreased on the move higher yesterday. If you add this to the fact that there is a bearish divergence in the advance/decline ration and then mix in the fact that technical indicators, including stochastics have moved to overbought, you have a recipe for a reversal.
With yesterday's break of the 200-day average, the target price for the SPY is now just slightly above $143. Shorting in this area offers a high probability of success.