SPY Trends and Influencers July 25, 2020

Last week’s review of the macro market indicators saw with the July Options expiration in the books, equity markets showed some rotation, out of technology and into small caps and, to a lesser degree, large caps. Elsewhere looked for Gold ($GLD) to consolidate in its uptrend while Crude Oil ($USL) consolidated under resistance. The US Dollar Index ($DXY) continued to drift to the downside while US Treasuries ($TLT) rose in the consolidation range. The Shanghai Composite($ASHR) looked to continue the pullback in the uptrend while Emerging Markets($EEM) paused in their uptrend. 

The Volatility Index ($VXX) looked to continue to slowly move lower making the path easier for equity markets to the upside. Their charts continued to look strong, especially on the shorter timeframe. The $QQQ looked to have given up the leadership role and was pausing, perhaps prepping for a pullback, while the $SPY and $IWM moved up out of recent consolidation.

The week played out with Gold driving higher to test the all-time high while Crude Oil continued to consolidate in a tight range. The US Dollar continued to move lower while Treasuries moved to the upside. The Shanghai Composite bounced but fell back by mid week to end slightly lower while Emerging Markets tested recent resistance but could not push higher.

Volatility was steady in a tight range, but with a small bump higher at the end of the week. This made it easier on equities and they responded by starting the week higher before a late week sell off. The QQQ took the worst fall, breaking the 20 day SMA while this resulted in the SPY pulling back from a higher high, but holding over the 20 day SMA. The IWM stood up the best, holding over the 200 day SMA. What does this mean for the coming week? Let’s look at some charts.

SPY Daily, $SPY

The SPY came into the week pressing against the June highs and near an 88.6% retracement of the drop from February. It moved up to touch that 88.6% level Tuesday and make a higher high. But it could not hold up and started lower Thursday. Friday finished back roughly where it started the week, with a doji star, signaling indecision.

The daily chart shows the move into the February gap for the first time and now the fall back remaining above the 20 day SMA. The RSI is pulling back in the bullish zone, after making a lower high. The MACD is crossing down but much flatter and positive.

The weekly chart printed a possible Shooting Star, a reversal pattern if confirmed lower next week. The RSI on this timeframe remains short of a move into the bullish zone while the MACD is rising and positive. There is resistance above at 324 and 332 then 339. Support lower sits at 320 and 318.50 then 313.50 and 309.50 before 305.50 and 302.50. Pause at Resistance in Uptrend.

SPY Weekly, $SPY

There is one week left in July and it will be filled with reports from the market leaders as well as a preliminary print on the 2nd quarter GDP number and expiring COVID-19 benefits. With all this looming overhead Equities have barely given up any ground. Elsewhere look for Gold to continue higher while Crude Oil consolidates in a narrow range. The US Dollar Index continues to move to the downside while US Treasuries advance towards their all-time highs. The Shanghai Composite looks to continue the move lower in broad consolidation while Emerging Markets consolidate in the February gap.

The Volatility Index looks to continue to drift low making the path easier for equity markets to the upside, but at a snail’s pace. Their charts also are becoming mixed after a long stretch of moving in unison. On the shorter timeframe both the QQQ and SPY are pulling back to support and from resistance, resetting momentum gauges. The IWM is holding firm though. On the longer timeframe the IWM and SPY have stalled short of their prior highs while the QQQ sees some profit taking. Use this information as you prepare for the coming week and trad’em well.

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