SPY Trends and Influencers October 20, 2012

Last week’s review of the macro market indicators suggested, heading into the October Options Expiration week markets were looking bleak. Gold ($GLD) looked ready to continue lower in the short run while Crude Oil ($USO) was biased higher. The US Dollar Index ($UUP) seemed content to move sideways while US Treasuries ($TLT) were biased lower. The Shanghai Composite ($SSEC) was biased to the downside with Emerging Markets ($EEM) looked to continue their consolidation at resistance. Volatility ($VIX) looked to remain subdued, keeping the bias higher for the equity index ETF’s $SPY, $IWM and $QQQ, with the view from the Dollar and Treasuries supporting that as well. The charts of the Equity Index ETF’s didn’t agree with this as the IWM and QQQ looked solidly biased lower with only the SPY in consolidation.

The week played out with Gold dropping Monday and consolidating all week until another hit Friday while Crude Oil printed a series of long legged doji in consolidation. The US Dollar moved lower before finding a bottom and bouncing while Treasuries moved down to test support. The Shanghai Composite continued to consolidate in a tight range before peeking over resistance as Emerging Markets tested the top of their range before pulling back. Volatility was tame, until Friday, but remains quite low. The Equity Index ETF’s all bounced only to give back their gains by the end of the week with the QQQ and IWM making lower lows. 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 continued to consolidate in the blue box, moving higher before slamming down hard to the bottom on Friday. The move took it back through the rising trendline on the daily chart and to the 50 day Simple Moving Average (SMA). The Relative Strength Index (RSI) on the daily chart shows another move lower but still holding over the transition into bearish territory. With the Moving Average Convergence Divergence indicator (MACD) again refusing to cross to positive and moving back lower. These support further downside. The weekly view shows the consolidation has not reached the longer term rising trend support, which with a continued move sideways would touch the first week in December. The RSI on the weekly chart remains bullish but is also working lower with a MACD that is about to cross to negative but at a very shallow angle. A breakdown could find support below 143 at 141.60 and 140.10 followed by 138 with a touch of that weekly trend this week coinciding with 139.15. Resistance above stands at 144.44 and then the top of the box at 147.70 with a target on a Measured Move higher to 168.80 over the consolidation. Continued Consolidation with a Downside Bias.

Heading into the new options cycle Gold and Crude Oil look ready to pullback further with the possibility that Crude Oil continues to consolidate. The US Dollar Index is poised to continue to move sideways while US Treasuries are biased lower. The Shanghai Composite is biased to the upside with the long term downtrend while Emerging Markets look to continue to consolidate. Volatility looks to remain low but is hinting at a move higher now, leaving the intermarket bias for the equity index ETF’s SPY, IWM and QQQ, mixed. Longer term biases lower for the US Dollar and Treasuries support the upside while potentially rising Volatilty supports more pullback. The Indexes themselves reflect this with the SPY the strongest and still consolidating while the IWM is biased lower and the QQQ the pulling back. All three are biased to the downside in the short run but the IWM and QQQ are at longer term rising trendline support. Use this information as you prepare for the coming week and trade’m well.

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