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This dead cat can bounce, time to buy the SPY?


  • SPY stages a tiny dead cat bounce on Wednesday.
  • Is this a dip or still a downtrend?
  • SPY is holding but the Nasdaq continues to suffer.

So buy the dip they said and everyone did exactly that. After all, it is the trade of the pandemic as stocks just keep on rising. But the problem with repetition is that eventually, the return gets smaller and smaller as the crowd cannibalizes returns for the masses and only the fittest survive. Markets are no place for the wisdom of crowds, it is the quickest, sharpest, and uniqueness that survive and thrive. This time the crowd pilled into the dip and got caught. We can take some credit for pointing out earlier than most that this time it was different. This dip had gone too far, deeper than the previous dip and the market breadth indicators such as the number of stocks above their 200-day moving average or the number of stocks making new highs were diminishing. Yesterday we finally got an attempt at a bounce but it was a pretty pathetic attempt. Today gives us a second chance.

SPY 15 minute chart

SPY stock forecast

The intraday chart above does not clarify much except that momentum was flat, neither bulls nor bears can claim victory here. But the daily chart below does give us some hope. The low on Wednesday was above the low on Tuesday, so perhaps signs of some stabilization. With quarter-end approaching tomorrow some erratic moves are possible and September has not been a strong month compared to the rest of 2021, we may catch a bounce running into it as investors square up. 

We can also see how quite nicely the SPY bounced off the 100-day moving average at $433. We will take this as our key level for Thursday, below look for further losses but opening above can lead us to retrace a bit and test the 9-day moving average at $439. The trend is still bearish however until $444 is broken, which makes the SPY neutral in our opinion. 

Our call form yesterday remains in place for today with little change “We expect to see a bounce today with a retracement back to the 9-day moving average at $440 the likeliest outcome and would then use this to go short. Always use stops, please. Breaking $445 will likely be our stop level and put the SPY back into neutral. Volume is light from $430 to $420, but our dip buy zone is at $415, safer with a huge volume profile bar to support the level and the yearly Volume Weighted Average Price (VWAP) and 200-day moving average converging nicely as $415”.

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