Rick Pendergraft: With the market struggling over the last few days and the volatility increasing over the last few weeks, I thought it might be helpful to take a look at one of the major index ETFs to see what is going on with the overall market. I selected the S&P 500 SPDRs (NYSEARCA:SPY) as it represents the broad market the best of the three major indices.
What we see on the weekly SPY chart is similar to what we have seen from a number of individual stocks. The SPY has been in a clearly defined, upward-sloped trend channel for the past year and a quarter. We see how the lows over this period connect very neatly to form the lower rail.
Two other things jump out at me about the weekly SPY chart. First, look at how the 10-week RSI hasn’t dropped below the 50 level since December 2012. That shows you how strong of a rally we have had in the last 15 months or so. The second thing that stood out is how the slow stochastic readings are barely out of overbought territory during this recent pullback. This is concerning as over the last year, most of the dips have seen these readings reach the 50 level. In order for that to happen this time, we are going to have to see more selling in the coming weeks and that could cause the index to break below the lower rail of the channel.