SPY Trends and Influencers July 27, 2024

• Posted by Greg Harmon
• on July 27th, 2024

Two weeks ago, the review of the macro market indicators saw heading into July Options Expiration week, equity markets showed early strength give way to rotation from large cap and tech names into small caps late in the week. Elsewhere looked for Gold ($GLD) to continue consolidation in the uptrend or break to new highs while Crude Oil ($USO) consolidated in a tightening range. The US Dollar Index ($DXY) continued to drift to the downside in consolidation while US Treasuries ($TLT) consolidated in their downtrend. The Shanghai Composite ($ASHR) looked to continue the move lower in consolidation while Emerging Markets ($EEM) had broken consolidation to begin an uptrend.

The Volatility Index ($VXX) looked to remain very low and stable making the path easier for equity markets to the upside. Their charts also looked strong, especially the $SPY on the longer timeframe. On the shorter timeframe both the $QQQ and SPY could use a reset on momentum measures as both were extended. But the story of the week was the $IWM joining the bull party after a 2½ year nap.

The 2 weeks played out with Gold pushing to a new high and then dropping back into consolidation and dropping back while Crude Oil maintained the consolidation range with a move to the downside to end the week. The US Dollar found support and bounced back to resistance while Treasuries consolidated in a tight range. The Shanghai Composite continued lower, ending at near 6 month lows, while Emerging Markets fell back to retest the breakout area and held.

Volatility picked up but ended the week dropping making for yet another lower high. This put pressure on equities and after starting the fortnight with 2 new all-time highs the SPY dropped the rest of the period, along with the QQQ. The IWM however held up in a consolidation range after a strong move higher. What does this mean for the coming week? Let’s look at some charts.

SPY Daily, $SPY

The SPY came into the week below the 20 day SMA for the first time since May 30th. It rose Monday back over it and held Tuesday before a gap down Wednesday and a drop below the 50 day SMA at the lower edge of the Bollinger Bands®. This was the first time below the 50 day SMA since the gap up May 3rd. It printed a reversal candle Thursday and moved higher Friday to close back above that 50 day SMA. The RSI turned higher as it touched the lower edge of the bullish zone with the MACD dropping and approaching zero.

The weekly chart shows a second down week but with a lower shadow appearing. The RSI on this timeframe is dropping out of overbought territory with the MACD crossing down looking for a reset lower. There is support lower at 542 and 540 then 537 and 534 before 530 and 524.50. There is a gap to fill to 553.27 and resistance higher is at 545.75 and 549.50 then 556.50 and 561.50. Pullback in Uptrend.

SPY Weekly, $SPY

With three trading days left in July, large cap and tech focused index equity markets showed weakness with small caps continuing to hold strong. Elsewhere look for Gold to continue its consolidation in the uptrend while Crude Oil consolidates in a tightening range. The US Dollar Index continues to drift in broad consolidation while US Treasuries consolidate in their downtrend. The Shanghai Composite looks to continue the short term move lower while Emerging Markets continue to hold their newfound short term uptrend.

The Volatility Index looks to remain low making the path easier for equity markets to the upside. This is with the backdrop of the July FOMC meeting and non-farm payroll reports next week among many large cap tech earnings reports. The charts of the SPY and QQQ look setup for more downside on the shorter timeframe and possibly the longer timeframe as well, but with no real damage in the weekly chart at this point. The prevailing narrative has been the rotation into small cap IWM and it is showing relative strength, but more in a consolidative mode then a full thrust forward this past week. A new high Monday could change that perspective fast. Use this information as you prepare for the coming week and trad’em well.

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