SPY Trends and Influencers January 18, 2020

• Posted by Greg Harmon
• on January 18th, 2020

Last week’s review of the macro market indicators saw with the first full week of the New Year in the books, equity markets ranged from being a bit extended to digesting the move in a pullback. Elsewhere looked for Gold ($GLD) to pause in its uptrend while Crude Oil ($USO) pulled back in consolidation. The US Dollar Index ($DXY) continued in a short term decline while US Treasuries ($TLT) paused in their downtrend.

The Shanghai Composite ($ASHR) looked to pause in its move higher while Emerging Markets ($EEM) continued to drive higher.  The Volatility Index ($VXXB) looked to remain very low making the path easier for equity markets to the upside. Their charts were mixed with the $IWM pulling back in the short term while the $SPY and $QQQ digested new highs from Thursday. All looked stronger on the longer timeframe.

The week played out with Gold pulling back slightly then reversing to end near unchanged while Crude Oil found support mid-week and then turned higher. The US Dollar continued lower until a strong move up to end the week while Treasuries rose all week until a big gap down Friday had them end lower. The Shanghai Composite held over support, dropping slightly, while Emerging Markets held at their highs after a mid week dip reversed.

Volatility was subdued with the Volatility Index holding under the teens all week. This put the wind at the back of equities and the IWM took off to the upside. By mid-week the SPY and QQQ had joined and all were moving higher. This resulted in the SPY and QQQ setting new all-time highs before some profit taking Friday. The IWM is now at a 16 month high and within 3% of its all-time high close. What does this mean for the coming week? Let’s look at some charts.

SPY Daily, $SPY

The SPY had seen profit taking result in a pullback from all-time highs as it entered the week. It recovered that drop Monday and then some printing a new all-time high. After a digestive day Tuesday, it went on to print 3 consecutive new all-time highs the rest of the week. It ended the week up almost 2 percent. The daily chart shows the Bollinger Bands® openings higher as price accelerates up. The RSI is in overbought territory, but not extreme and is turning flat with the MACD rising and positive. It looks very strong on this timeframe.

The weekly chart shows a second near Marubozu candle in a row, pressing to the top of the Bollinger Bands. The RSI is overbought on this timeframe as well and nearing extreme levels with the MACD rising and at the January 2018 peak. There is no resistance above, only a target to 350 on a Measured Move. Support lower sits at 331.50 and 329 then 327 and 324.90 before 322. Uptrend.

SPY Weekly, $SPY

With January options expiration complete, equity markets are strong but some are getting near overheated levels. Elsewhere look for Gold to continue its pullback in the uptrend while Crude Oil pulls back in the broad range consolidation. The US Dollar Index looks to continue to bounce in its downtrend while US Treasuries consolidate over support in their pullback. The Shanghai Composite looks to continue to consolidate in the uptrend while Emerging Markets move higher.

The Volatility Index looks to remain very low making the path easier for equity markets to the upside. Their charts also look strong on both timeframes. On the shorter timeframe both the QQQ and SPY could use a reset on momentum measures as both are extended and near extreme. The IWM is starting to catch up to them as it approaches the all-time high. Use this information as you prepare for the coming week and trad’em well.

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