$SPY: All time highs everywhere and not a dip to spare...

SPY

The market is already rampant with speculation but here's my two cents. I know the danger that exists and trying to call the top but at this point, it almost seems inevitable that the time is near for the S&P 500 to retrace. Many of what I would call legitimate bearish signals have been rejected repeatedly leading to higher price levels. This, though frustrating for technical traders, isn't unfathomable considering that the perceived risk in the market is extremely low unlimited QE coupled with low-interest rates and an increase in individual investors has led to the markets having a level of liquidity that supports this growth and current bullish sentiment.

In fact, when examining the chart it does look like the S&P 500 actually does have some more room left to the outside but at this point that room is limited and it coincides with the psychological price resistance level of $400 ($392-$408 is what I predict to be the reversal point range). At that price, $SPY will be in the range of fib extension levels that commonly signal the completion of a cycle - and looking at the chart, it does appear that the S&P 500 is possibly completing the third impulse wave of a larger multi-year cycle.

At the moment, there are several divergences on multiple time frames and much of the rise in price over the last week (five days of positive price movement ending with a 4.7% gain for the week) is contrasted by reducing volume with sell volume often higher the buy volume. VIX has returned to a strong support level which could mean another pop in volatility around the corner which could trigger a sell-off driving SPY lower into April . That being said, lack of bearish catalyst and influx of individual investors into the markets could extend the rally well into the year before wave completion.

I would suggest treading carefully here trimming position and building a hedge. Puts on $SPY do not have a track record for being profitable so I would recommend rather buying UVXY as a hedge or if not deterred by the past performance of SPY puts, ITM puts with expiration dates at least 3 months out could sufficiently counterbalance any incoming market turbulence. Short-term calls may be on fire this week but with limited upside, as it is hard to imagine the S&P 500 can extend this run after a five-day streak without any significant pullback.

(Believe it or not, this is actually the abbreviated version of my analysis but it is Sunday morning and I should probably be doing other things besides charting right now

tl;dr SPY will likely overextend itself on the push to $400 before volatility returns. Margin Debt, 10yr Treasury Rate, Inflation, VIX , S&P 500 PE Ratio all on watch. Sharp correction possible by April.