The market feels a bit heavy right now. Even the pockets of absolute bullish insanity like the quantum realm and nuclear energy are showing some softening—which, in those names, means double-digit down days. Market reflexivity means what goes up fast generally comes down fast.

After the absolute face-melting six months of rocket-ship bullish action we’ve seen since the April 7th low, sideways action, red in accounts, losing trades, and setups that require patience all feel a bit foreign at this point. The norm has been to buy any and all dips and print money. That can only last so long before some selling comes in.

SPY is now 2.19% off its all-time highs as I write this, and the Fear & Greed Index sits at 23—Extreme Fear. That’s totally bonkers and shows just how complacent the market got under the “up-only” mentality.

Over the past week, I’ve been cautious but neutral. Candles like the one we saw last Friday historically lead to lower lows—and usually pretty quickly. However, recent history has said the opposite: that any 3% dip marks the low and new all-time highs follow within weeks. So we have the entire history of the SPY competing with the very recent history of the SPY, setting up a face-off to decide whether October turns into Uptober or Octobear. Admittedly, the latter sounds like some octopus-bear hybrid monster you might encounter in a nightmare—which is apparently less terrifying than a 2.1% dip in the market.

IWM was signaling that the fun would continue this week, while Bitcoin was flashing caution and suggesting lower lows were likely. As of this moment, it looks like Bitcoin was the correct bellwether, as even IWM saw steep selling on Thursday. Still, neither IWM nor QQQ has made a new lower low. The bulls have continued to defend all key levels—for now.

BTCUSD

It’s a decent time to be cautious. We’ve been in one of the strongest bull runs in history, and we’re entering the period where pullbacks are normal. If everything finds support and rockets higher during earnings season without any follow-through to this pullback, the only other time we’ve seen a market this relentlessly bullish was during the dot-com boom.

If SPY does break below the big support area around $655, the next major level is $640-$630, where we have the 20-week EMA, the 100-day SMA and AVWAP from the May 12th gap. When we zoom in, SPY still hasn’t touched its 10-week EMA—this is now the second-longest stretch in history without doing so, behind only the 1995 start of the dot-com bull run at 26 weeks.

SPY Daily Chart

The other two analogs we’ve been tracking—2017/2018 and 2023/2024—each dropped to their 50-week and 20-week SMAs, respectively, once the pullback began. If SPY breaks below the 10-week SMA now, we could see a similar pattern: a sharp drop followed by another high within a few months—seven months in 2017/2018 about six weeks in 2023/2024.

To sum up, last week’s SPY candle was a bearish engulfing pattern that wiped out the prior three weeks of gains. This week, so far, is shaping up as an inside high-wave candle—showing that pressure is building. If we do break down from here, I’ll be watching the 100-day SMA, 20-week EMA, and anchored VWAP from the May 12th breakout gap as critical support levels. Around that zone, the risk/reward into new all-time highs becomes attractive again—and that’s where I’ll look to get more aggressive once again.

SPY Weekly Chart