SPY Trends and Influencers January 25, 2020

Last week’s review of the macro market indicators saw with January options expiration complete, equity markets were strong but some were getting near overheated levels. Elsewhere looked for Gold ($GLD) to continue its pullback in the uptrend while Crude Oil ($USO) pulled back in the broad range consolidation. The US Dollar Index ($DXY) looked to continue to bounce in its downtrend while US Treasuries ($TLT) consolidated over support in their pullback.

The Shanghai Composite ($SSEC) looked to continue to consolidate in the uptrend while Emerging Markets ($EEM) moved higher.   The Volatility Index ($VXXB) looked to remain very low making the path easier for equity markets to the upside. Their charts also looked strong on both timeframes. On the shorter timeframe both the $QQQ and $SPY could use a reset on momentum measures as both were extended and near extreme levels. The $IWM was starting to catch up to them as it approaches the all-time high.

The week was dominated by news of the corona virus and played out with Gold moving sideways until a burst higher late in the week while Crude Oil rolled lower. The US Dollar moved slightly higher while Treasuries jumped and continued higher all week. The Shanghai Composite pulled back finding support at the 200 day SMA before the Chinese New Year break while Emerging Markets took a hit and settled lower.

After a quiet start to the week Volatility rose Friday, putting pressure on equities and they responded by moving lower. The equity index ETF’s started the week mixed with the QQQ heading to new highs, the SPY flat and the IWM starting lower. By Thursday they had all tested moves lower with the IWM continuing. Friday they all dropped. This resulted in the SPY and QQQ ending the week a few points off of their all-time highs and the IWM falling short in its push to retake the high. What does this mean for the coming week? Let’s look at some charts.

SPY Daily, $SPY

The SPY came into the week at an all-time high. It was a bit extended with momentum in an overbought situation, so it could use a pause in the uptrend. Tuesday and Wednesday it held at the highs. Thursday saw a dip bought and it held again. Friday the sellers overwhelmed the market and it dropped lower. A late day bounce kept it from closing down more than 1%.

But it printed a long, red, bearish engulfing candle Friday, drawing it close to a retest of the 20 day SMA. The drop brought the RSI on the daily chart down out of overbought territory and crossed the MACD down although it is still very high. So far a healthy digestion upon hitting the ascending triangle breakout target after a strong run higher.

The weekly chart shows an inside week. The RSI on this timeframe is pulling back from overbought with the MACD slowing its angle of ascent. There is resistance at 332 and then a Measured Move to 350 above. Support lower comes at 328 and 327 then 324.90 and 322 before 320. Pullback in Uptrend.

SPY Weekly, $SPY

The corona virus seems to be the catalyst that is pushing sellers to enter the market. It is early in the process but so far markets are proving very resilient, with only minor pullbacks. Perhaps because of the strong earnings releases. Next week could prove to be a very important week for the the short term future of equity markets. Elsewhere look for Gold to continue higher while Crude Oil pulls back in broad consolidation. The US Dollar Index looks to continue its short term move higher in the downward channel while US Treasuries accelerate to the upside.

The Shanghai Composite will be closed until February but looks better lower while Emerging Markets pullback in an uptrend. The Volatility Index looks to remain low but is starting to rise off of very low levels. This could put a drag on equity markets. Their charts look strong on the longer timeframe, but the overheated run higher is correcting in the shorter one. On the daily charts the QQQ are pausing with the SPY pulling back while the IWM is pulling back in broad consolidation. Use this information as you prepare for the coming week and trad’em well.

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