SPY Trends and Influencers December 10, 2016

A weekly excerpt from the Macro Review analysis sent to subscribers on 10 markets and two timeframes.

Last week’s review of the macro market indicators noted that heading into the last month of the year the equity markets were retrenching from their post-election moves, with shallow pullbacks to this point. Elsewhere looked for Gold ($GLD) to continue in its downtrend while Crude Oil ($USO) moved higher. The US Dollar Index ($DXY) continued to mark time, moving sideways, while US Treasuries ($TLT) were biased to continue lower.

The Shanghai Composite ($ASHR) was on a trend higher that looked to continue while Emerging Markets ($EEM) consolidated at resistance with a bias to the downside. Volatility ($VXX) looked to remain low keeping the bias higher for the equity index ETF’s $SPY, $IWM and $QQQ. Their charts were mixed again, with the longer timeframe better for all 3, but the shorter timeframe showing weakness. All 3 ended the week with indecision candles though so the retrenchment might end soon.

The week played out with Gold stabilizing before a dip lower at the end of the week while Crude Oil peaked Monday and ran lower until a bounce Thursday and reversed. The US Dollar ended its pullback at support and reversed up while Treasuries broke consolidation to the downside. The Shanghai Composite gapped below its 20 day SMA at the start of the week but recovered by Friday as Emerging Markets moved higher all week.

Volatility dropped hard Monday and settled at a two month low the rest of the week. The Equity Index ETF’s started the week moving sideways, and then the IWM started higher Tuesday. It was followed Wednesday by the SPY and QQQ, and they continued through Friday. The IWM and SPY closed at new all-time highs and the QQQ within a quarter point of its all-time high. What does this mean for the coming week? Lets look at some charts.

SPY Daily, $SPY

The SPY came into the week having printed a doji Friday, an indecision candle, after two down days. It decided quickly with a gap up Monday and follow through Tuesday. But both were small body candles and only took the SPY back to the peak from the prior week. Wednesday was the key day as it exploded to the upside and out of its upper Bollinger Band®. Thursday saw continuation and Friday again to a new all-time high close at the end of the week.

The RSI on the daily chart is in overbought territory and the MACD is extreme, so a pullback to reset is a strong possibility. With the FOMC meeting as a catalyst this week, it adds more weight to that case. It is also at the Measured Move off of the November 11 low. On the weekly front the SPY nearly printed a Marubozu candle higher though, very bullish. So short term overbought and longer term very strong.

The RSI on this timeframe is bullish and rising as is the MACD. This suggests any pullback may be just a short-lived overbought retrench. There is no resistance but a broad Measured Move to 233. Support lower comes at 224.50 and 221.60 followed by 219.50. Uptrend Continues with Possible Short Term Overbought Pullback.

SPY Weekly, $SPY

Heading in to December Options Expiration and the FOMC meeting US Equities look strong but perhaps extended on the short term. Elsewhere look for Gold to continue its downtrend while Crude Oil continues to move higher. The US Dollar Index also looks better to the upside while US Treasuries continue to be biased lower. The Shanghai Composite and Emerging Markets both are biased to the upside with risk Emerging Markets being only a short term move.

Volatility looks to remain subdued and abnormally low keeping the bias higher for the equity index ETF’s SPY, IWM and QQQ. Their short term charts suggest possible exhaustion as they are over sold, but longer term they look very strong. The exception is the QQQ which has been stuck in a range but is now at the top end. Perhaps it will benefit from a pullback in the other index ETFs. Use this information as you prepare for the coming week and trad’em well.

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