SPY Trends and Influencers February 25, 2023

Last week’s review of the macro market indicators saw with the February options expiration in the books, equity markets showed resilience holding up well despite an onslaught of negative inflation news and shifting narrative to further FOMC tightening. Elsewhere looked for Gold ($GLD) to continue its short term pullback while Crude Oil ($USO) consolidated in a tight range. The US Dollar Index ($DXY) continued to drift to the upside in the downtrend while US Treasuries ($TLT) continued a short term downtrend.

The Shanghai Composite ($ASHR) looked to continue the pullback in consolidation while Emerging Markets ($EEM) pulled back in their uptrend. The Volatility Index ($VXX) looked to remain normal and stable making the path easier for equity markets to the upside. Their charts looked strong, especially on the longer timeframe holding in consolidation after making higher highs. On the shorter timeframe both the $QQQ and $SPY were holding over support while the $IWM had started to move higher out of a bull flag.

The week played out with Gold continuing to the downside while Crude Oil remained in consolidation bouncing off the bottom of the range. The US Dollar continued the move to the upside while Treasuries found support in their short term move lower. The Shanghai Composite bounced back to resistance and stalled while Emerging Markets continued their move lower.

Volatility rose up off the lows to the top of the normal range. This put pressure on equities and they responded by starting the week with a 2 day move lower. All found support by Wednesday and held until a move lower again Friday. This resulted in the QQQ retesting the 200 day SMA and holding while the SPY stopped half a point above its 200 day SMA. The SPY and IWM ended at 1 month lows, and the QQQ at a 3 week low. What does this mean for the coming week? Let’s look at some charts.

SPY Daily, $SPY

The SPY came into the week on support in consolidation after a move to a higher high to start the month. It gapped down Tuesday and continued Wednesday, touching the 50 day SMA. It held there Thursday and then dropped again Friday to less than a point away from the 200 day SMA before bouncing. It ended back near the 50 day SMA but at the lowest level in a month. The daily chart shows the RSI is dropping back near the lower edge of the bullish zone with the MACD about to cross to negative.

The weekly chart shows the price touched the falling trendline from 2022 that acted as resistance. This time it held as support, setting up a possible reversal after the breakout retest. The RSI on this timeframe is back at the midline with the MACD level but positive. It would take a further move down under 375 to kill the short term uptrend. Until then any reversal would put in another higher low. There is support at 394.50 and 391 then 389 and 386 before 382. Resistance higher is at 397.50 and 400.50 then 403.50 and 405.50 before 407.50 and 411. Pullback in Short Term Uptrend.

SPY Weekly, $SPY

With only 2 trading days left in February, equity markets showed some weakness as they reacted to a less sanguine Fed in their discussion of disinflation. Elsewhere look for Gold to continue its short term pullback while Crude Oil consolidates in a tight range. The US Dollar Index continues to move to the upside while US Treasuries pullback in consolidation. The Shanghai Composite looks to continue to consolidate under resistance while Emerging Markets continue the move lower.

The Volatility Index looks to remain in the normal range and stable making the path easier for equity markets to the upside. Their charts are showing weakness on both timeframes but remain well above the prior lows, not threatening the nascent uptrends at this point. The SPY and QQ also remain above the falling trendline that acted as resistance through 2022. The IWM trend looks the strongest at this juncture. Use this information as you prepare for the coming week and trad’em well.

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