SPY Trends and Influencers December 17, 2011

• Posted by Greg Harmon
• on December 17th, 2011

Last week’s review of the macro market indicators looked heading into Options Expiration week to be a bit more settled. Gold ($GLD) looked to consolidate in a range while Crude Oil ($USO) was biased higher. The US Dollar Index ($UUP) and Treasuries ($TLT) were better to the upside but the trend in Treasuries was getting weaker so it could consolidate or pullback. The Shanghai Composite ($SSEC) was on its death bed while Emerging Markets ($EEM) looked to continue lower. Volatility ($VIX) looked to continue its drift lower. This mix set up for the Equity Index ETF’s $SPY, $IWM and $QQQ to be biased to the upside slightly and their charts concurred. The US Dollar Index strength would be the biggest risk to Equity upside in the coming week with Treasuries looking more peaked. If Treasuries gain strength then the slight Equity upside bias will be negated.

The week began with Gold falling and Oil stable but falling later in the week. The US Dollar moved higher and then consolidated while Treasuries ran higher. The Shanghai Composite accelerated lower and Emerging Markets fell before consolidating at the lows of the week. Volatility fell slightly but in a tighter range, maybe a sign of bottoming. The Equity Index ETF’s moved lower off of this combination of influences. the slight upside bias overwhelmed by the Treasury and US Dollar moves. 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 moved lower early in the week and consolidated through Friday, building a bear flag. The Relative Strength Index (RSI) on the daily chart has held just below the mid line and over 40 while the Moving Average Convergence Divergence ( MACD) indicator has crossed negative and is growing more so. These support a move lower unless the RSI turns up. The weekly chart shows movement in a continued broad range. The RSI on this timeframe has not been able to move into bullish territory while the MACD that has been positive, is moving back toward the zero line. These also support downside or perhaps further consolidation in this flag. All of the Simple Moving Averages (SMA) are basically moving sideways showing longer term directionless action. The short term will drive the direction. Support lower comes at 120 and then 118.50 and 116 below that. Resistance is higher at 124.55 and followed by 125.90 and 131.10. Look for more downside in the coming week with a chance of a continued consolidation.

The last two weeks of the year are upon us and with the Holidays lighter volume and less interest. Moves can get exaggerated in this environment. Gold still looks broken from its move and poised for more downside while Crude Oil is also broken and biased lower. US Treasuries and the US Dollar look to continue to drive the direction of the markets crushing Equities as they move higher. The Shanghai Composite, which has been playing a supporting role in moving Equities lower, looks to continue to do so long term but might consolidate the last leg down in the short run first. Emerging Markets look to pay the price lower as well. Volatility is poised to continue to drift lower supporting an orderly move. All this sets up for the Equity Index ETF’s, SPY, IWM and QQQ, to move lower in the coming week, and the short term charts agree. Use this information as you prepare for the coming week and trade’m well.

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