the blue lines on the 120 minute SPY chart below are resistance levels that any bounce in the SPY is likely to turn-back down at. usually, in an intermediate downtrend, like we are in currently, we get positive divergence on the 60 minute macd before any significant bounce (my definition of a “significant bounce” is one worth closing most or all of my short positions and going long). currently, the macd only has positive divergence on the 30 minute and lower time frames. therefore, that shorter-term divergence, plus the fact that the SPY hit the support level(s) that i pointed out on friday, increases the odds of at least a small bounce, maybe something that a very nimble trader might try to game for a quick counter-trend trade but not worth it IMO. what i most often see in the relentless up-trends and down-trends, like we’ve had for the last several weeks, is that until there is solid evidence of a likely reversal, all bounces (or dips during those strong up-trends) are likely to be sold (or bought) into relatively quickly and usually before the technical levels that most traders are watching. therefore, my bias remains to the downside for now and i will use any decent bounce to unload my SSO long hedge and scale into additional short positions unless something convinces me to do otherwise.
on the flip-side, if we do get some nice additional downside this week, we could be looking at a very nice reversal (short to long) entry. often i will just reverse at one final target level (cover all shorts and go long) although normally, especially if the final target(s) is not very clear, i will scale out of my shorts and gradually start scaling into longs as we begin to approach the top of the likely final target zone.