SPY Trends and Influencers July 23, 2022

Last week’s review of the macro market indicators saw with the July Options Expiration in the books, equity markets showed some resilience with a rebound from an ugly start, to finish only slightly lower as 2nd Quarter earnings season opened. Elsewhere looked for Gold ($GLD) to continue its short term downturn while Crude Oil ($USO) consolidated in an uptrend. The US Dollar Index ($DXY) continued in an uptrend nearing 20 year highs while US Treasuries ($TLT) consolidated in their downtrend. The Shanghai Composite ($ASHR) continued a short term downward move while Emerging Markets ($EEM) trended lower.

The Volatility Index ($VXX) looked to remain slightly elevated but moderating taking some of the pressure off equity markets. Their charts had moved to consolidation on both the shorter and longer timeframe, with the indexes exhibiting a very strong correlation. On the longer timeframe the $SPY remained the strongest with the least retracement and smallest pullback from the highs with the $QQQ next by virtue of its distance above the 200 week SMA and then the $IWM.

The week played out with Gold wrestling with 1700 as support, recovering from a dip below it while Crude Oil met resistance in a bounce before falling back to support. The US Dollar pulled back to support while Treasuries held their ground before a spike up towards resistance Friday. The Shanghai Composite found support and reversed higher only to stall at prior resistance while Emerging Markets bounced off the new 52 week low.

Volatility moved lower all week to end near long term normal levels at a 3 month low. This allowed equities to move to the upside and after a Monday hiccup, they rallied for 4 days. All ended Friday with some afternoon profit taking. This resulted in the SPY back near 400 and the QQQ over 300 with the IWM continuing its break higher. All 3 made short term higher highs. What does this mean for the coming week? Let’s look at some charts.

SPY Daily, $SPY

The SPY came into the week sitting on its 20 day SMA after a bounce off support. It dropped back to the 20 day SMA Monday and then reversed higher Tuesday to close at its first short term higher high since March. It continued higher through Thursday, stopping just short of the big round number 400 and then saw profit taking Friday. The Bollinger Bands® on the daily chart are now pointing higher with price falling back inside them Friday. The RSI is pinging the edge of the bullish zone with the MACD rising and now positive. There is a gap to fill above to 401.44 on this timeframe.

On the weekly chart there is a clear range break higher. The RSI remains in the bearish zone though, but it is starting to rise, with the MACD about to cross up. There is support lower at 394.50 and 391.50 then 389 and 386 before 382 and 380. Resistance higher comes at 397.50 and 400.50 then 403.50 and 405.50 before 407.50 and 410. It will take a move over 417.50 to confirm a full blown reversal higher, so a long way yet to go, but a positive week. Short Term Reversal Higher.

SPY Weekly, $SPY

With one week left in July, equity markets displayed a second straight week of highly positive correlation, but this time in a move up out of consolidation. Elsewhere look for Gold to continue its pullback while Crude Oil pulls back in the uptrend. The US Dollar Index continues to pullback in its trend higher while US Treasuries bounce in their downtrend. The Shanghai Composite looks to continue the short term move lower while Emerging Markets continue in a downtrend.

The Volatility Index looks to continue back towards normal levels making the path easier for equity markets to the upside. Their charts are starting to look stronger as they move up out of consolidation, especially on the longer timeframe. All still have work to do before a full blown reversal can be called. On the shorter timeframe continuation of the moves by the IWM and SPY to fill the gaps and the QQQ higher, with momentum shifting into bullish ranges would get some cash off the sidelines. Use this information as you prepare for the coming week and trad’em well.

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