The SPY has now hit my first intermediate target where I still believe that a reaction (i.e.- a relatively short-lived bounce or consolidation) is likely.  However, I still put the odds around 50/50 as to whether or not the market just slices through that level much sooner than most expect, possibly as soon as today or tomorrow.  Bottom line is that where I might normally reduce some short exposure after a decent drop down to support such as this, my current plan is to sit tight with all short positions nor do I plan to take any long-side hedges.  Below are the recent chain of 4-hour SPY charts in order as posted with the updated chart last (each candlestick representing 4-hour of price action whereby daily charts represent all 6.5 hours of trading in each candlestick).

Zooming into the 5 minute charts below (previous & updated), we can see that the SPY has found support off the bottom of this “micro” or sub-downtrend channel as outlined with the orange trendlines on the updated chart.  Note that positive divergence has formed with the MACD making higher lows against prices making lower lows within that channel.  Although these are potentially bullish technicals on this very short-term (5 minute) time frame and may very well play out for a bounce, more so considering the fact that the SPY is also at support on the 4 hour (and daily) time frames, again my take is that any bounce from at or slightly below current levels is likely to be short-lived and prone to a sudden reversal.

If I had to venture a guess, I’d say any bounce from at or near currently levels would likely be limited to: a) the top of that 5 minute descending channel (orange trendlines); b) the blue horizontal line around the 162.65 area; or c) the yellow primary downtrend line.  Any move above that yellow downtrend line, especially over the 165 area (previous reaction high) would begin to call the current downtrend into jeopardy.  As of now, I’m more interested in shorting bounces than trying to catch bottoms, at least until I see positive divergences forming on the 60 minute time frame.  I am, however, being very selective on adding any additional short exposure at this point until/unless we either a) bounce to one (or each) of the aforementioned resistance levels or b) make a solid break below the 159.80ish support level on the SPY.