SPY Trends and Influencers May 27, 2012

• Posted by Greg Harmon
• on May 27th, 2012

Last week’s review of the macro market indicators saw heading into the last week before the unofficial start of Summer the reality of a continued bearish bias as strong. Crude Oil ($USO) looked better to the downside with Gold ($GLD) heading higher at the same time as global economic fears were growing. The US Dollar Index ($UUP) and Treasuries ($TLT) were looking to continue to strengthen with a chance that the Dollar Index consolidated first. The Shanghai Composite ($SSEC) was now firmly heading lower in line with the crash in the Emerging Markets ($EEM). The Volatility Index ($VIX) broke the pressure cooker to the upside and looked to continue to move higher. These influencers set a backdrop for the Equity Index ETF’s to continue to the downside. There was no disagreement or discussion this week. The charts of the $SPY, $IWM and $QQQ whole-heartedly agreed with the downside bias. The only caution with global turmoil was to look for a reversal in the Dollar Index or Treasuries as a sign that the worst was over for equities.

The week played out with Gold falling to support before recovering while Crude Oil slowed the pace of the fall. The US Dollar broke out higher while Treasuries consolidated. The Shanghai Composite consolidated in a tight range near the recent lows while Emerging Markets slowed their decline, perhaps finding a bottom. Volatility consolidated at the bottom of the move higher. The Equity Index ETF’s halted their fall and built tightening bear flags through 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 built a classic bear flag off of the low of a week ago Friday, with volume declining. The 20 day Simple Moving Average (SMA) crossed down through the 100 day SMA with the 50 day SMA closing in on it as well. The move brought it back within the Bollinger bands, which remain biased lower. The Relative Strength Index (RSI) stopped its bounce higher short of 40 and looks to head lower with a Moving Average Convergence Divergence (MACD) indicator that appears may avert a bullish cross to positive on the daily timeframe. Pulling out to the weekly timeframe finds price holding above the short term trend line support with all the SMA moving sideways. The RSI is trending lower but bounced, maybe a reversal? The MACD however just says price is heading lower. There is support lower at 131.46 and 129.60 followed by 128 and 124.80. Under 129.60 there is now a Measured Move to 120.85. Resistance on a move higher is found at 133 and 134 followed by 136.10. Over 136.10 and many will become bullish again, with a move over 142 bringing calls for 152.25. Consolidation with a Downside Bias.

Heading into the unofficial first week of summer, the bearish feel is still alive. Gold and Crude Oil look to continue the trends lower with a chance of consolidation. The US Dollar Index looks strong but may consolidate after a big move last week, while Treasuries are biased higher after consolidating last week. The Shanghai Composite looks to continue lower with the Emerging Markets consolidating in the downtrend. The Volatility Index remains biased to the upside after holding higher. These influencers set the stage for the Equity Index ETF’s SPY, IWM and QQQ to continue lower. A reversal by the Dollar Index and treasuries could change that. The charts of those Index ETF’s are are consolidating short term in a downtrend, with the QQQ looking the worst of the three. Remember consolidation can break either way. A move below last week’s lows will have the bears growling. it will take a lot for the bulls to be happy. Use this information as you prepare for the coming week and trade’m well.

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