NEW YORK (Real Money) -- Is the concern regarding the S&P 500 (SPY) warranted here? Looking at the charts, I'd say short-term concern is obviously warranted and some much longer-term worries are creeping in.
We have to remind ourselves though that we are only 2.5% off the highs right here. So while the last few days or even the last few weeks have maybe felt a bit rough around the edges, this is the same pullback we experienced twice in March. The only reason I mention concern is due to where price has taken us.
For the first time since the lows of March, the SPY is trading below the support levels of the current channel. It doesn't matter when you want to use intraday lows or closing lows for your support line either, as yesterday's move breached them both. If the bulls want to recover price action here, then $209 is the minimum target today; otherwise, they will be hoping support comes in at $208. If we get a close under $208, then I'm looking for a continued grind lower until we reach $205.
The technical picture isn't exactly great here either. Momentum is seeing lows as measured by the Relative Strength Index that we haven't seen since March, even while price is much higher. This is a bit of a bearish divergence, but really more of a leading indicator for me. Given this is a slightly longer term 13-period RSI, a recovery into the high 40's is needed this week for some signs of stabilization and over 50 should bring a few momentum players sniffing around.
Also, this is only the fourth time in four months where we witnessed the Chaikin Money Flow in bearish territory for three days or more in a row. The last three lasted four to six days, but only saw three days deep in the red. Another measure in this -0.10 range or worse would give us a fourth today. Bulls don't want to see this change of character, so watching the close on the CMF today and tomorrow should be worth the time. Another deep red close will support a bearish short-term thesis.
Sometimes we want to look before just this week or this month and get a feel for what may be to come for the next few years. The SPY is one of those few names where I'm willing to look at a monthly, or even, quarterly chart. This is big, but there are only a few things to focus on -- the first is price. The uptrend lines are very clear.
We are resting on support right here. We would still need a few more points lower to completely clear the support level for the quarter, but June will end the quarter. A finish under $205 puts us on a close below support for the first time since 2009. Second, focus on the Moving Average Convergence Divergence. These look like short term measurements: three, eight and 13, but remember we are talking about quarters here. The bearish crossover has been correct on the last two big moves lower. We aren't there yet, but we sure are close.
Last, keep an eye peeled on the full stochastics. Being overbought isn't a concern, but leaving overbought (crossing under 80) is a concern. If the MACD crosses lower, then we should expect the full stochastics to cross under 80 within the year.
Overall, the short-term pullback is nothing out of the ordinary, but the quarterly chart is one of concern. The last two MACD crossovers were met with large 45% drawdowns. Granted those were both during a time without Quantitative Easing; however, it is worth noting. If we see price lose support at the same time the MACD crosses bearishly, then we might finally get a correction in play.
Editor's Note: This article was originally published at 10:45 a.m. EDT on Real Money on June 9.