SPY Trends and Influencers May 14, 2022

• Posted by Greg Harmon
• on May 14th, 2022

Last week’s review of the macro market indicators saw with the first week of May in the books, equity markets remained in downtrends. Elsewhere looked for Gold ($GLD) to pullback while Crude Oil ($USO) possibly resumed the uptrend. The US Dollar Index ($DXY) continued to the upside while US Treasuries ($TLT) trended lower. The Shanghai Composite ($ASHR) looked to continue lower while Emerging Markets ($EEM) trended to the downside.

The Volatility Index ($VXX) looked to remain elevated making the path easier for equity markets to the downside. Their charts also looked weak, especially on the longer timeframe. On the shorter timeframe both the $QQQ and $IWM were also weak and looked better lower. The $SPY sat at support, though with a breakdown would join them lower.

The week played out with Gold continuing to the downside while Crude Oil dipped early but saw late strength move it higher and back near even by Friday. The US Dollar continued up to a 19 year high while Treasuries made a new 3⅟₂ year low before a late week bounce. The Shanghai Composite found support and moved higher while Emerging Markets also found support and consolidated lower.

Volatility remained elevated early in the week and then worked lower by Friday. This continued the pressure on equities early and they continued to cycle lows on Thursday. All found support intraday and reversed to finish the week slightly lower. This resulted in the SPY and QQQ ending back over big round levels with the IWM pressing on resistance. What does this mean for the coming week? Let’s look at some charts.

SPY Daily, $SPY

The SPY came into the week holding at the February intraday low and a 1 year closing low and below 400. It gapped down and ran lower Monday, below 400. Tuesday saw an inside day and then another down day Wednesday ended at a 14 month low. Thursday gapped down again and ran to near a 20% drop from the all-time high before reversing and then Friday followed with a short term trend reversal confirming move higher to end the week.

It was in the end a down week for the SPY, the 6th in a row, leaving market participants with the question “Is this a bear market rally or a reversal?” The daily chart shows the move back over 400 Friday with the RSI lifting off of oversold and the MACD leveling at an extreme. The weekly chart shows a Hammer candle at the 100 week SMA and reaching down to nearly a 38.2% retracement of the move from the pandemic low.

The RSI is deep in the bearish zone with the MACD negative and dropping. There is support lower at 400.50 and 397.50 before 394.50 and 389.50 then 386 and 380. Resistance higher sits at 403.50 and 405.50 then 407.25 and 411 before 413.75. Possible Reversal Set up in Downtrend.

SPY Weekly, $SPY

Heading into May options expiration week, equity markets showed a strong finish to a week that began really weak and fearful, giving hopes for the worst being over. Elsewhere look for Gold to continue its pullback while Crude Oil consolidates for a possible move higher. The US Dollar Index continues to the upside while US Treasuries may see a bounce in their downtrend. The Shanghai Composite looks to continue the bounce in its downtrend while Emerging Markets continue to trend lower.

The Volatility Index looks to remain elevated making the path easier for equity markets to the downside. Their charts are set up for potential reversals on the longer timeframe, with Hammer candles after drops of over 30% for the IWM and QQQ, and almost 20% for the SPY. The daily charts are not convincing of a turnaround yet though with prior resistance closing in overhead. Use this information as you prepare for the coming week and trad’em well.

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