The main watch out is NDX: a key support level has been tested twice, including on Thursday of this past week: if it is breached, the index has the potential to fall 5-10% lower into the 'hot mess' from summer 2015 and winter 2016.
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In our last market summary three weeks ago, the near term trend had turned weak and the set up was for SPY to move to its 50-dma and lower Bollinger Band. There was little reason to expect more significant weakness as breadth, sentiment, macro, commodities and seasonality were generally supportive. That post is here.
In the event, SPY visited its 50-dma the following week and then revisited that same level again this week. During this time, SPY has lost about 1% and remained within a tight 2% range for the past 3 weeks.
To put that in perspective, SPY rallied 16% from its February low to its late April high, and then retraced just 20% of that rally. This is, overall, very minor and a sign of resilience after recording strong gains.
The weakest index in the US has recently been the NDX. It might be the best barometer for what happens next. NDX formed an important low on May 6 (4300 level) and then retested that low this week. Should that low be breached, NDX will be back into the hot mess from August/September 2015 and January/February 2016, with the potential to "waterfall" 5-10% lower once again.