SPY Trends and Influencers May 6, 2012

• Posted by Greg Harmon
• on May 6th, 2012

Last week’s review of the macro market indicators saw heading into the week the broad market was looking very bullish again. Gold ($GLD) and Crude Oil ($USO) were poised to continue higher with a chance that Gold digests its recent gains. The US Dollar Index ($UUP) looked better to the downside and Treasuries ($TLT) looked to be contained back in the previous consolidation zone. The risk there was to the upside for Treasuries. The Shanghai Composite ($SSEC) continued to flirt with a major break out and looked better to the upside with Emerging Markets ($EEM) stuck in a downward channel. Volatility ($VIX) retreated and was also set up better to the downside. Take away from that the upside risk was small. These influencers created a backdrop that supported more upside for the Equity Index ETF’s, $SPY, $IWM and $QQQ and their charts agreed on both the short term and intermediate term timeframe.

Gold and Crude Oil did move higher before both were set back later in the week. The US Dollar found a bottom and moved higher while Treasuries continued in a range, testing the top late in the week. The Shanghai Composite continued higher with Emerging Markets probing out of the channel only to fall back in. Volatility rose but remained low. The Equity Index ETF’s probed higher Tuesday, but all printed long upper shadows which were confirmed lower and all ran down hard to end the week. What does this mean for the coming week? Lets look at some charts.

As always you can see details of individual charts and more on my StockTwits feed and on chartly.)

SPY Daily, $SPY

SPY Weekly, $SPY

The SPY probed near the recent highs, but ended up printing a bearish Evening Star pattern and moving back lower. Note that the top was short of the previous 142.21 high. The daily chart shows a strong red candle lower to end the week with increasing volume and a 20 day SMA crossing down through the 50 day SMA. The RSI is still in bullish territory but pointing lower and near a cross into bearish territory with a MACD that has crossed negative. All of these signals point to more downside. That picture gets blurred when moving out to the weekly chart. There is a bearish divergence on the MACD and the RSI is pointing lower but at a much stronger level. The price action shows a bull flag continuing though between the 143.02 full retracement of the move lower during the financial crisis and the early 2011 high consolidation area. It should not surprise that it would take time retake the all time high. There is support lower near 136 and 134 followed by 133 and 130. Under 128 would trigger a bearish bias and a target of 112. There is no resistance over the 142.21 and 143.02 but a move higher triggers a Measured Move to 161.85 near the 123.6% Fibonacci extension. Short Term Downside within an Intermediate Term Consolidation.

As we recover from the combined effects of celebrations around Cinco de Mayo and the Kentucky Derby the market is decidedly turning more bearish. Gold looks to continue in the range with a break biased to the downside while Crude Oil looks to crash lower. The US Dollar Index seems content to move sideways while US Treasuries are biased higher in their consolidation range. The Shanghai Composite is on the verge of a full blown bull market while Emerging Markets look to continue to the downside. Volatility looks to remain low but has an increased chance of moving higher. These influencers paint a montage that sets up for lower levels for the equity index ETF’s SPY, IWM and QQQ. Their charts agree with the inter-market set up on the short term but are less convinced on the intermediate term. The SPY looks the strongest with the IWM next and the QQQ the weakest. Use this information as you prepare for the coming week and trade’m well.

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