SPY: Taking a Breather or Big Drop Ahead?

I have featured several articles since this summer with potential support/resistance targets on SPY. In July I gave the top of the 'Lehman Gap' from October 2008 as one potential line of heavy resistance since it also co-aligned with a 50% retracement level. We hit that resistance in September, only to fall back to the 50 day simple moving average before soundly bouncing off the 50 day SMA last week.

Where does that leave us? I think we are at a critical juncture - a strong move through the red line (the resistance) could mean we are headed for higher levels, as much as 120 before taking another significant breather. We are still above the trend line from early March after briefly dipping below it last week. Personally, I am watching resistance, the trend line, and major moving averages (20 and 50 day) which will help give us an idea of the short and intermediate trend. Volume and down days still outweighs that on up days, which is cause for concern if you are a bull. However, bulls still have the trend in their favor.

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