SPY Near Upper Range of Long-term Bear Channel

Here is an update of SPY within its long-term bear channel. I first posted this graph on July 22nd, and within that post I remarked:

If there is a trade here, it may be to position for a run to the upper channel boundary. From today’s close to the upper boundary is roughly 15%. A run to that level would validate the prediction from Goldman Sachs Group, Inc. (GS: 162.58 -0.57%) and put the market up approximately 20% for the year. From where I sit, it would also make a great place to take profits. Keep in mind that the upper boundary is declining, and so the longer it takes for SPY to reach the boundary, the lower the percentage gain once it gets there.

From today’s close to the upper channel line is about 4.5%. In my opinion, trying to catch that last 4.5% may be an expensive endeavor, but as you know, I will do what my systems say to do. Were I a discretionary trader, I would be spending a significant amount of time considering a variety of short setups. As the markets enter a seasonally weak period, after a huge run-up, hanging out just beneath a large technical boundary, considering some short exposure makes good sense. Too bad that what often makes good sense often makes losses in the markets.

But I digress.

Despite the (plug in your bias, conspiracy theory, fundamental analysis, or government intervention), the upper channel line is still the most important technical measure to watch. If the SPY trades above it, the long-term downtrend will be broken.

Oh yeah, in the interest full disclosure, I was 15% short the SPY as of Monday’s open.