I was chatting with Jeff (Mrkt_Rwnd) today and we both had noticed the convergence of the SPY around some interesting price areas — an area I’m now calling “The Line in the Sand.”

These price areas include:

  • Close from 12/31/10 ($125.75),
  • The 200 day SMA ($125.21 at the moment) and finally
  • Prior March Low ($125.33).

Let’s take a look at the chart:

A break below $125 may indicate that this rally is over.  For many people, this is already a foregone conclusion.  I’ve also been anticipating this – and lowering my portfolio exposure – since 2/18/11 when relative strength (the second chart) of SPY/IEF started showing signs of weakness.  And then we had higher-highs in the SPY without corresponding relative strength when compared with 10 year bonds, and, finally, relative strength slipping to negative, indicating that despite the low yields of the 10-year, it was still outperforming the SPY.

For now, the “Line in the Sand” still stands – on a break, we’ll raise more cash.