SPY Trends and Influencers June 18, 2022

Last week’s review of the macro market indicators saw heading into the June options expiration week and FOMC meeting, equity markets had resumed their blood bath moves to the downside and were testing the May lows. Elsewhere looked for Gold ($GLD) to continue its consolidation in the uptrend while Crude Oil ($USO) drove up to new highs. The US Dollar Index ($DXY) continued its move to the upside while US Treasuries ($TLT) continued their downtrend. The Shanghai Composite ($ASHR) looked to continue to move higher while Emerging Markets resumed the move to the downside.

The Volatility Index ($VXX) looked to remain elevated making the path easier for equity markets to the downside. And with the Dollar Index resuming the uptrend it reinforced this. Their charts also looked ugly, especially on the longer timeframe with reversal patterns ending the week with prices back near the lows. They were also synched up and moving in unison. On the shorter timeframe both the $QQQ and $SPY were back at May lows but with momentum building. The $IWM was not far behind them. All of this suggested more downside in the coming week.

The week played out with Gold dropping back early in the week and then recovering back into consolidation while Crude Oil pulled back from a retest at the March high. The US Dollar made a higher high before profit taking while Treasuries made new 8 year lows before a bounce. The Shanghai Composite moved higher to resistance while Emerging Markets fell back to retest the May lows.

Volatility rose back near the highs of the year and then stalled. This put continued pressure on equities and they ended with their worst week of the year. All saw a relief rally after the FOMC meeting Wednesday but reversed to finish the week at 18 month lows. The IWM and QQQ have retraced more than half of their post pandemic runs while the SPY is closing in on its 50% retracement. What does this mean for the coming week? Let’s look at some charts.

SPY Daily, $SPY

The SPY came into the week falling out of consolidation after a bounce. It was at the May lows but then gapped down to open Monday below the 38.2% retracement of the post pandemic move up. It consolidated there on strong volume through the FOMC meeting Wednesday. But then it gapped down again Thursday and continued to close a levels not seen in 17 months. The daily chart shows the RSI running at the lower edge of the bearish zone with the MACD negative and dropping. One thing to note is that multiple gap down moves on big volume are sometimes a sign of capitulation.

The weekly chart shows the long red candle after a gap down, ending outside of the Bollinger Bands®. The RSI on this timeframe is on the edge of oversold with the MACD negative and falling, now at its lowest level ever. The 50% retracement level below is lined up with the 200 week SMA. There is support lower at 364.50 and 360 then 358 and 356 before 353 and 348.20. Resistance higher sits at 369 and 373 then 376 and 380 before 386 and 389.50. Downtrend.

SPY Weekly, $SPY

With the June options expiration in the books, equity markets showed acceleration to the downside. Elsewhere look for Gold to consolidate while Crude Oil pulls back in the uptrend. The US Dollar Index looks to pause in its move higher while US Treasuries continue their downtrend. The Shanghai Composite looks to continue the trend higher while Emerging Markets continue to move lower.

The Volatility Index looks to remain elevated making the path easier for equity markets to the downside. Their charts look horrible, especially on the longer timeframe. On the shorter timeframe the IWM, the QQQ and the SPY could possibly consolidate or bounce next week due to the technical factors listed above to give a reset on momentum measures. But there should be no mistaking that for a reversal if they do, the trend remains to the downside. Use this information as you prepare for the coming week and trad’em well.

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