TVO Market Barometer 5/11/17: Is the “cup” starting to crack?

For the past 5 straight days SPY has opened and closed around and above 239. The volume activity has stayed in a pretty tight range as well… That is, except for today (Thursday) where the signs of distribution on the big board may be the first cracks in the bull’s venerable “cup and handle” pattern that’s been poised to break to the upside for some time. The fact that SPY 240 hasn’t happened yet should already be a red flag for bulls to take heed. Perhaps there are just too many folks on board the breakout train and more shaking of the tree is needed before we can move higher (For those that think Market Makers don’t force these swift shakeout type down moves just to sweep the stops, well, denial is not just a river in Egypt).

Even though we sold our SPY calls from March on Tuesday for a +12% gain, the recent drop in volatility took a serious toll on the option premium, which could have been much higher considering that SPY gained 5 points in the same time period. And in an environment where shrinking volatility leads to shrinking profits, well, be rest assured that “they” (MMs, big institutions, etc.) are not going to let it stay that way for very long. -MD

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