SPY Trends and Influencers February 26, 2022

Last week’s review of the macro market indicators saw with February options expiration in the books, equity markets showed further weakness. Elsewhere looked for Gold ($GLD) to continue its move higher while Crude Oil ($USO) consolidated pauses in its uptrend. The US Dollar Index ($DXY) continued to consolidate in a narrow range while US Treasuries ($TLT) pulled back. The Shanghai Composite ($ASHR) looked to continue the broad consolidation while Emerging Markets ($EEM) consolidated to move lower.

The Volatility Index ($VXX) looked to remain elevated making the path easier for equity markets to the downside. Their charts looked weak, especially on the shorter timeframe. On the longer timeframe the $QQQ looked the worst with the $IWM next and the $SPY trying to hold onto consolidation.

The week was dominated by reactions to the Russian invasion of Ukraine. Gold drifted to the upside but spiked on the news and fell back just as fast to end lower while Crude Oil consolidated early but also saw a spike then reversed to end the week flat. The US Dollar spiked higher and held while Treasuries fell back after spiking to the 20 day SMA on the news. The Shanghai Composite held in a tight range, little changed, while Emerging Markets fell through the falling channel bottom before a bounce and partial recovery.

Volatility was leaking higher early and spiked to just short of the January high before settling little changed on the week. This put initial light pressure on equities and they responded by starting the week with a 3 day move lower. All gapped lower Thursday and then reversed to finish the day higher with follow through Friday. This resulted in the SPY, IWM and QQQ ending higher on the week and well off the bottom. What does this mean for the coming week? Let’s look at some charts.

SPY Daily, $SPY

The SPY came into the holiday shortened week looking weak as it was pulling back from a short term double top. It dropped Tuesday, closing at a 4 month low and then continued lower Wednesday, to an 8 month low. With the siege overnight it opened Thursday with a gap down, now over 14% off the all-time high. It pushed higher all day though and ended up on the day, with a bullish Marubozu candle boding for follow through.

It did move higher Friday with another strong trend day and finishing the week on the plus side. It was also a good sign that Friday finished on the highs. The daily chart shows the RSI is rising back towards the midline with the MACD turning higher towards a cross up. The weekly chart shows a long lower shadow but a recovery to close back over support and at the 50 week SMA.

The RSI on this timeframe is holding at the lower edge of the bullish zone with the MACD dropping but positive. There is support lower at 437.50 and 435.50 then 430.50 and 428.50 before 425.50. Resistance higher comes at 441 and 444 then 447 and 450 before 454 and 457. Consolidation.

SPY Weekly, $SPY

With one trading day left in February, equity markets showed late week strength overcoming a geopolitically driven sell off and ending at the highs Friday. Elsewhere look for Gold and Crude Oil to possibly pause in their uptrends after printing reversal candles. The US Dollar Index continues to trend to the upside while US Treasuries trend lower. The Shanghai Composite looks to continue in broad consolidation while Emerging Markets remain in a downtrend.

The Volatility Index looks to remain elevated putting a headwind up against the equity markets’ nascent recovery. Their charts look hopeful on the shorter timeframe. On the longer timeframe both the QQQ and IWM still look weak in short term trends lower. The SPY looks the best holding at the lower end of a 19 month range. Use this information as you prepare for the coming week and trad’em well.

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