Is The S&P 500 ETF On The Cusp Of A Significant Reversal? (SPY, SDS)

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June 21, 2010 8:29pm NYSE:SDS NYSE:SPY

Stocks gapped higher at the opening bell this morning on news that China would (slowly) allow the Yuan to float.  The “Renminbi Rally” was to be short lived, however.  The S&P 500 (INDEXSP:.INX)

  briefly stuck its nose above the 1130 mark, and quickly reversed skate to finish the day in the red.  Volume was anemic, once again.  Is the S&P’s mini-retracement over at the 50% mark?

S&P 500 Stock Price Chart June 21 2010

When this rally kicked off in late May, we thought the S&P 500 would likely rally as high as 1123…though we held out hope that our friend Jeff Clark was correct in predicting an 1130 ending point.  On May 27th, Jeff wrote:

Over the next several days, the S&P 500 could rally back up to 1,100 or even 1,130 if the bulls really take control.

Remember, though, dead cats always fall back to the bottom. Once we get a bounce in stock prices, we’re likely to come back down and retest the lows.

As a trader, I’m playing stocks from the long side right now. But I’ll be quick to take profits and I’ll be looking to short stocks aggressively if the S&P rallies back toward 1,130.

After being forced to cover my previous ill-advised short at a loss, I again shorted the S&P 500 during this morning’s bounce (@ 1119.50 via Sept S&P mini-futures).

So far so good on this one – I LOVE this as a potential short entry point.  Though this rally took awhile to get started, it eventually carried out in a fashion pretty well aligned with our original playbook.

The weak volume numbers on the rise add to my confidence that the next turn should be down.  We’ll need to see price, and preferably price AND volume action, to confirm that the downtrend has resumed.  But all indications show we could be on the cusp of a significant reversal.

Written By Brett Owens From Contrary Investing

The best way to play the S&P 500 index is through ETFs and we have included some details on the SPDR S&P 500 ETF (NYSE:SPY) and the ProShares UltraShort S&P500 (NYSE:SDS) as a long and short play on the S&P 500 Index below:

SPDR S&P 500 ETF (NYSE:SPY)  Visit Our SPY Category: HERE

The SPDR® S&P 500® ETF is a fund that, before expenses, generally corresponds to the price and yield performance of the S&P 500 Index (Ticker: SPTR). Our approach is designed to provide portfolios with low portfolio turnover, accurate tracking, and lower costs.  

Company Symbol % Assets
Apple Inc. (AAPL) 1.9
AT&T Inc. (T) 1.66
Chevron Corporation Common Stoc (CVX) 1.55
Exxon Mobil Corporation Common (XOM) 3.25
General Electric Company Common (GE) 1.61
International Business Machines (IBM) 1.72
JP Morgan Chase & Co. Common St (JPM) 1.65
Johnson & Johnson Common Stock (JNJ) 1.78
Microsoft Corporation (MSFT) 2.36
Procter & Gamble Company (The) (PG) 1.78

Chart forSPDRs (SPY)

ProShares UltraShort S&P500 (NYSE:SDS)  Visit Our SDS Category: HERE

The investment seeks daily investment results, before fees and expenses, which correspond to twice the inverse of the daily performance of the S&P 500 index. The fund invests in derivatives that advisors believes should have similar daily return characteristics as twice (200%) the inverse of the daily performance of the Index. It invests typically the rest of the assets in money market instruments. The fund is nondiversified.  

 Chart forUltraShort S&P500 ProShares (SDS)

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