SPY Trends and Influencers May 20, 2012
- Posted by Greg Harmon
- on May 20th, 2012
Last week’s review of the macro market indicators saw after a dose of family for Mother’s Day the reality of a continued bearish bias taking hold. Gold and Crude Oil looked better to the downside with the US Dollar Index and Treasuries looking to continue to strengthen. The bullish flirtation of the Shanghai Composite might be over while the pullback in Emerging Markets continued. The Volatility Index was building pressure to move higher as well. These influencers set a backdrop for the Equity Index ETF’s to continue to the downside. The chart of the QQQ agreed whole-heartedly while the SPY and IWM were mixed with the intermediate term view continuing to hold steady. New highs by Treasuries or the Dollar Index would likely knock everything lower, while a pullback in bonds and the Dollar would provide a floor.
The week played out very closely along the lines of the technical story above for the second week in a row, at least to start. Gold and Crude did run lower with Treasuries moving higher, but Gold reversed mid week and drove higher. The Dollar Index moved higher as well but pulled back late in the week. The Shanghai Composite confirmed lower while Emerging Markets continued their bloodbath. The Volatility Index perked up and closed on the high above major levels. In response the Equity Index ETF’s all accelerated their moves lower closing near the lows for the week. Lets look at some charts.
The SPY continued its strong trend lower breaking though several support levels this week as the Bollinger bands have opened the flood gates for a move lower. Volume is expanding on this move down reinforcing its strength. The Relative Strength Index (RSI) is bearish on the daily chart and now technically oversold. All that means is that it is time to watch for consolidation or a bounce, not that it will happen. It can still head a lot lower and stay oversold for a long time. Generally not a great time to initiate a short but also not time yet to take it off if you are short. The Moving Average Convergence Divergence (MACD) indicator is also continuing to trend lower supporting more downside. The last 3 candlesticks make a Three Black Crows pattern, which is very bearish. On the weekly chart the break of the 2011 high resistance area moving lower is significant. The RSI on this timeframe is moving sharply lower towards full on bear territory and the MACD is growing more negative after trending lower for several weeks. There is support lower at 128 and 126 followed by 124.30, 120.40 and 117.50. Resistance on a bounce is found higher at 130 and 131.46 followed by 133 and 134. Look for continued downside.
Heading into the last week before the unofficial start of Summer the reality of a continued bearish bias is strong. Crude Oil looks better to the downside with Gold heading higher at the same time as global economic fears are growing. The US Dollar Index and Treasuries are looking to continue to strengthen with a chance that the Dollar Index consolidates first. The Shanghai Composite is now firmly heading lower in line with the crash in the Emerging Markets. The Volatility Index broke the pressure cooker to the upside and looks to continue to move higher. These influencers set a backdrop for the Equity Index ETF’s to continue to the downside. There is no disagreement or discussion this week. The charts of the SPY, IWM and QQQ whole-heartedly agree with the downside bias. Look for a reversal in the Dollar Index or Treasuries as a sign that the worst is over for equities. Use this information as you prepare for the coming week and trade’m well.
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Some Macro Articles from the past week that you need to know.
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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.blog comments powered by Disqus
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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