SPY Trends and Influencers February 1, 2020

Last week’s review of the macro market indicators saw the corona virus seemed to be the catalyst that was pushing sellers to enter the market. It was early in the process but markets were proving very resilient, with only minor pullbacks. Perhaps this was because of the strong earnings releases. The new week could prove to be a very important week for the short term future of equity markets. Elsewhere looked for Gold ($GLD) to continue higher while Crude Oil ($USO) pulled back in broad consolidation. The US Dollar Index ($DXY) looked to continue its short term move higher in the downward channel while US Treasuries ($TLT) accelerated to the upside. 

The Shanghai Composite ($ASHR) had closed until February but looked better lower while Emerging Markets ($EEM) pulled back in an uptrend. The Volatility Index ($VXXB) looked to remain low but was starting to rise off of very low levels. This could put a drag on equity markets. Their charts looked strong on the longer timeframe, but the overheated run higher was correcting in the shorter one. On the daily charts the $QQQ was pausing with the $SPY pulling back while the $IWM was pulling back in broad consolidation.

The week played out with Gold sloshing around in a moderate range, ending slightly higher while Crude Oil gapped down early, then filled the gap and reversed lower again. The US Dollar met resistance mid week and reversed lower while Treasuries continued their move to the upside. The Shanghai Composite was closed for the week, opening Monday while Emerging Markets continued to the downside after a mid week bounce.

Volatility popped early in the week and then settled only to surge higher again Friday. This put pressure on equities and they responded by starting the week with a move lower. All found support by Wednesday and then dropped again into the weekend. This resulted in the SPY and QQQ hitting 3 week lows and the IWM suffering the most dame, now at 2 month lows. What does this mean for the coming week? Let’s look at some charts.

SPY Daily, $SPY

The SPY came into the week pulling back off of the all-time highs, but still on the bullish side of the 20 day SMA. That ended Monday with a gap down. It climbed back through Wednesday, filling the gap, and then dropped hard Friday. The near Marubozu red candle touched the bottom of the Bollinger Bands® and the 50 day SMA on the daily chart for the first time since October 10th, before a small bounce. The daily chart shows the price at a short term support level with the RSI dropping through the mid line. The MACD is resetting lower and positive.

The weekly chart puts this move in perspective. Price has pulled back a little over 2% since touching the 330 target out of the ascending triangle. This has reset the RSI out of overbought territory and turned the MACD lower towards a cross down. There is support lower at 320 and 319 then 315.50 and 313.50. Resistance above is now at 322 and 324.90 followed by 327 and 328 before 332. Pullback in Uptrend.

SPY Weekly, $SPY

With the first month of the year in the books, equity markets have finally stalled and started to retrace after a long strong run in the 4th Quarter and into January. Elsewhere look for Gold to continue to move higher while Crude Oil tests the lower end of a broad consolidation channel. The US Dollar Index looks better to the downside while US Treasuries head towards the all-time highs. The Shanghai Composite looks to re-open with a bias lower compounded by a week of pent up news while Emerging Markets continue a short term downtrend.

The Volatility Index looks to remain elevated making the path easier for equity markets to the downside. Their charts also look weak on the shorter timeframe with the IWM the ugliest and the SPY now at possible support. Only the QQQ remains near the 20 day SMA. The longer timeframe looks much less concerning for the QQQ and SPY. The IWM is weaker but at support on this timeframe. Use this information as you prepare for the coming week and trad’em well.

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