SPY Trends and Influencers October 29, 2011
- Posted by Greg Harmon
- on October 29th, 2011
Last week’s review of the macro market indicators looked going into the week as Gold ($GLD) would continue the move it started lower while Crude Oil ($USO) consolidated at resistance with the possibility of a pullback. The US Dollar Index ($UUP) and US Treasuries ($TLT) both looked to continue lower. The Shanghai Composite ($SSEC) was on the edge of collapse and Emerging Markets ($EEM) looked lower but with a chance of continuing to consolidate. Volatility ($VIX) was biased to the downside creating a supportive environment for the Equity Index ETF’s $SPY, $IWM and $QQQ to continue higher. The SPY had the strongest set up going into the week with the QQQ the weakest. It was almost time to get bullish. The moves in the US Dollar Index and US Treasuries continued to be the key drivers for Equity markets so caution of a reversal was warranted.
The charts did a good job or telling where the broad market would head this week, except totally reversed for Gold and Crude Oil. Gold just ran higher and Crude Oil went right through that resistance, while the US Dollar Index and Treasuries continued lower. The Shanghai Composite caught a bid but really just arrested the downfall, while Emerging Markets broke the consolidation higher with the US markets. Volatility did break down out of its range facilitating higher prices for the SPY, IWM and QQQ, with the QQQ getting within 1% of its 10 year high. What does this mean for the coming week? Lets look at some charts.
The SPY started the week continuing higher before a massive move up Thursday over the 200 day SMA that held Friday. The Relative Strength Index (RSI) is in bullish territory and the Moving Average Convergence Divergence (MACD) is growing more positive. Both support more upside. The weekly chart shows the RSI moving towards 60 and the MACD having just crossed positive. The consolidation lower has been reversed and the trend is now higher. There may be a pullback next week which would be healthy given the large run this week. There is resistance higher at 129.8 and 131.84 on the way to a retest of the years highs at 135.80. Any pullback has support at 127.60 and then 125. Below 123.50 the up move can be questioned.
As we head into the last 2 months of the year Gold and Crude Oil look ready to continue higher with a chance that Gold consolidates the recent gains. On the other hand the US Dollar and US Treasuries are set up to continue lower. The Shanghai Composite is showing signs of a reversal higher while Emerging Markets also look higher, but since they are at resistance may consolidate. Volatility looks to continue lower supporting further upside for the US Equity Index ETF’s SPY, IWM and QQQ. US Markets all had a good run last week and it would not be a surprise to see a pullback to consolidate the gains. Use this information as you prepare for the coming week and trade’m well.
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Gregory W. Harmon CMT, CFA, has traded in the Securities markets since 1986. He has held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
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