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November 06, 2009

The Twist on the SPY's "Squeeze"
by Marty Chenard

Remember last week when we discussed: "The SPY squeeze"?

In that update, we mentioned that: "the SPY's bottom support is rising toward the gap's resistance line." We mentioned it was a "squeeze" because the distance between the resistance and support was becoming a smaller and smaller as every day went by. In other words, resistance and support are converging on each other.

Here we are a week later and that did not change as seen in the first chart. But, what is interesting is the second chart ...

This chart shows the SPY and our C-RSI (zero based Relative Strength).

While everything appears pretty normal on the SPY's chart, it doesn't when you look at what has been happening to the SPY's Strength.

First note, that the SPY and the C-RSI has a recent "negative divergence" ... and that usually spells trouble down the road.

Now look at the blue arrows. Note that as the SPY has been moving up and making higher/lows (the definition of an up trend), the C-RSI Strength has been moving downward and making lower/lows (the definition of a down trend).

From our past postings, you know that the SPY halted its upward progress after closing its gap at 109.68. So now, the C-RSI is moving up, but has a resistance line to deal with today. If it makes it past that, then retesting the gap's resistance would be the big challenge because of the falling Strength.

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Marty Chenard
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Tel: 828-296-1200

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