The SPY (S&P 500 Depository Receipts) is at an attractive buy point after the S&P 500 reverted to the mean at the 20-week simple moving average last week and attracted buying.
In uptrends, price has a tendency to revert to the mean during temporary periods of profit taking, and from there resume the uptrend to reach new highs. Since there isn’t any topping activity in the “500,” there’s a good chance the index will reach new highs for the primary uptrend in the coming weeks or months.
THE TARGET
I estimate upside potential at 1750-1800 by January. This is where the top of the bull channel comes in that the “500” has been rising in since the start of the primary uptrend in March 2009. I treat the top of the channel as an attractive place to liquidate long holdings and be on the lookout for any attractive set-ups on the short side of the market.
MOMENTUM READINGS
Weekly RSI averages reached overbought conditions in April and May and have been declining since then. Momentum tends to slow before price peaks, so this contributes to evidence warranting caution with regard to upside potential.
