SPY: While SPY did end well off the lows on Thursday it still displayed cracks that hadn’t shown up during the rally off the mid April lows, mainly 2 lower lows in a row and 2 red days in a row. Furthermore, SPY went below its previous hours low for the first time since the rally began. While my short trade is based on SPY I prefer to watch the S&P500 for my reference point. I’m focused on SPX 1,650. That’s a nice round number that I feel has psychological implications. If SPX breaks and stays below it at Friday’s open then I’d expect a move towards 1,640 which would translate to low $164′s in SPY. The main trigger for a short trade on SPY is if it can break below its initial 3 min low and 6 min lows by 9:45-9:50. If that can’t happen then I would expect upside or a generally neutral day.

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GOOG: This small pullback from all time highs is starting to look very similar to the pullback off of the 844 all time high. GOOG posted back to back red days on Monday/Tuesday for the first time in the month of May. Today is the 4th day that it hasn’t closed green and made a new all time high, when compared to the 4th day after 844 high (3/11) you can formulate a very good trade idea based on today’s high of 911.66. An inability to move above 911.66 on Wednesday has me targeting a move to 888-890 which would represent a modest 3.2% pullback from its 820 all time high. Above 911.66 and GOOG will find its way back in the 920′s and setting a new all time high. I am placing a level of significance on today’s high on GOOG more than I usually would. Why? Because if you look back at 3/11, you’ll notice that GOOG wasn’t able to get above that high and it preceded a sustained pullback. Moreover, Tuesday’s lower high and lower low is the 2nd in 3 days. If that’s enough, the volume pattern at the 844 all time high on the daily was g/r/g/r… this volume pattern started out g/r/g/r. There is no other time in between the 844 all time high and the most recent one where GOOG posted a g/r/g/r daily pattern without closing one of those 4 days at a new all time closing high.

Click here for the rest of my watchlist for tomorrow.