SPY Trends and Influencers February 29, 2020

Last week’s review of the macro market indicators saw with February options expiration, there was one week left in the month, and equity markets were starting to move lower. Elsewhere looked for Gold ($GLD) to continue its strength while Crude Oil ($USO) crept higher in consolidation. The US Dollar Index ($DXY) remained in an uptrend despite Friday weakness while US Treasuries ($TLT) seemed poised to print record highs.

The Shanghai Composite ($ASHR) looked to continue the move higher while Emerging Markets ($EEM) moved lower in broad consolidation. The Volatility Index ($VXXB) looked to remain at elevated levels, continuing to put pressure on equity markets. Their charts were looking weaker on the shorter timeframe with the exception of the $IWM in consolidation. On the longer timeframe the $SPY and $QQQ still looked strong as they worked off overbought conditions.

The week played out with Gold topping Monday and then dropping back while Crude Oil rolled over to move lower all week. The US Dollar continued down off of the Friday weakness while Treasuries showed continued strength and moved to new all-time highs, with record low yields. The Shanghai Composite finally met resistance while Emerging Markets fell back to 5 month lows.

Volatility spiked and kept running, reaching the February 2018 highs. This crushed equities as they responded by starting the week with a gap down and then continued with large daily percentage moves lower each day to drop over 15% from the highs in record speed. This brought the Index ETF’s back to October 2019 levels. What does this mean for the coming week? Let’s look at some charts.

SPY Daily, $SPY

The SPY came into the week just off of the all-time high and retesting the January high. It gapped down under the 50 day SMA at the open and then moved in a narrow range Monday. Tuesday opened slightly higher but then drove lower all day and continued into Wednesday. Thursday saw another gap down, and after closing it, a drive lower. It ended Thursday under the 200 day SMA for the first time since June 2019. Friday saw another gap down and wild moves intraday. The final minutes of trading saw it rise to close almost green on the day.

At the low the SPY was down more than 15% from the all-time high, in only 7 trading days, a record fast move lower and on massive volume for the week. The low printed at a retest of the October 2019 low. It ended well outside of its Bollinger Bands® on the daily chart. It also now has a RSI oversold and in the teens, and a MACD driving lower and negative. Both are now at the December 2018 lows. The momentum and Bollinger Band readings along with the Hollow Red candle set up well for a bounce next week.

The weekly chart shows a long red candle touching the 100 week SMA for the first time since early 2019. The RSI has dipped into the bearish zone with the MACD crossed down but positive. There is support lower at 294 and 929 then 290 and 287 before 285 and 284 then 282. Resistance above sits at 296.50 and 298.50 then 300 and 302.50 before 304.50 and 307.50. Downtrend, Possibly Overextended.

SPY Weekly, $SPY

With the first 2 months of the year in the books, equity markets had their worst week in years, driving lower with alacrity never seen before. Elsewhere look for Gold to pullback while Crude Oil continues to drive lower. The US Dollar Index looks to continue lower in the short term while US Treasuries prices set record highs. The Shanghai Composite looks to pullback after its move higher while Emerging Markets move lower in broad consolidation.

The Volatility Index looks to remain extreme making the path easier for equity markets to the downside. Their charts look horrible in the short term, but overextended so there is a possibility of a bounce or outright reversal. The longer term charts show a lot more damage, with the IWM sitting on long term support but the SPY and QQQ driving lower. Use this information as you prepare for the coming week and trad’em well.

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