We will be adding to our SPY trade. The SPY is rebounding exactly as expected. As we noted, on a 1-2-3 pattern, we should see a fourth weak push toward the highs and that's exactly what we've seen. If you look at the rally up to the highs this week it has all been done on GAPS alone. That means each session the SPY has moved higher of the lows was 100% attributed to gaps instead of intraday buying. We have two completed doji's and a bearish reversal in the three out of the four sessions the SPY is higher and the market is working on a 3rd doji today. That's not a strong showing. That's a very very weak showing. You want to see the opposite. You want to see a low open, buying intraday and a strong close. We haven't seen that at all. So that lends further support to the 1-2-3 hypothesis. So we will be adding to our SPY short position. See below:
What's more, volume has been steadily declining throughout this rally, suggesting conviction is waning and the risk of weakness ahead is rising. Still, any weakness should be seen as an opportunity, not a threat. If some of these companies go on sale again – including the FAANG names – there are a legion of cash-heavy buyers out there who won’t want to miss a second kick at the can. So we will be getting offensive on the next pullback cycle. But where we get offensive with regards to longs depends largely on the scope of the pullback.