SPY Trends and Influencers May 21, 2022

Last week’s review of the macro market indicators saw 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 looked for Gold ($GLD) to continue its pullback while Crude Oil ($USO) consolidated for a possible move higher. The US Dollar Index ($DXY) continued to the upside while US Treasuries ($TLT) might see a bounce in their downtrend. The Shanghai Composite ($ASHR) looked to continue the bounce in its downtrend while Emerging Markets ($EEM) continued to trend lower.

The Volatility Index ($VXX) looked to remain elevated making the path easier for equity markets to the downside. Their charts were 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 were not convincing of a turnaround yet though with prior resistance closing in overhead.

The week played out with Gold finding support and reversing higher at the end of the week while Crude Oil met resistance at the February high and stalled. The US Dollar also met resistance and pulled back while Treasuries consolidated at the top of the recent range. The Shanghai Composite made a move higher late in the week while Emerging Markets reversed but quickly met resistance at a lower high.

Volatility drifted lower early but then rebounded back over 30, remaining elevated. This allowed equities to have an early week move higher before they reversed and dropped. The SPY and QQQ made new 52 week lows while the IWM fared slightly better, holding above last week’s low. What does this mean for the coming week? Let’s look at some charts.

SPY Daily, $SPY

The SPY came into the week following a 6 week losing streak but with a Friday bounce to lift it off the low. It held there Monday and then rose Tuesday, printing a Hanging Man candle on the daily chart. It confirmed lower Wednesday printing a new 14 month low. It gapped down Thursday and held with an indecision candle.  But Friday it started with a strong move lower and reached an over 20% pullback from the all-time high midday.

It bounced from there and managed to close the day slightly higher. This made for a 7th down week in a row. The daily chart shows the Bollinger Bands® open to the downside. The RSI is holding in the bearish zone with the MACD turning lower and at a 2 year low.

The weekly chart shows the touch at the 38.2% retracement of the post pandemic rise. The RSI on this timeframe is on the verge of moving into oversold territory with the MACD negative and dropping. There is resistance at 394.50 and 397.50 then 400.50 and 403.50 before 405.50 and 407.50. Support lower is at 389.50 and 386 then 380 and 376 before 373. Downtrend.

SPY Weekly, $SPY

With May options expiration in the books, equity markets made new lows with the SPY reaching down into bear market territory, joining the IWM and QQQ, before rebounding at the close Friday. Elsewhere look for Gold to possibly reverse higher while Crude Oil consolidates in an uptrend. The US Dollar Index is pulling back in its uptrend while US Treasuries bounce in their downtrend. The Shanghai Composite looks to continue the short term move higher while Emerging Markets continue the downtrend.

The Volatility Index remains elevated making the path easier for equity markets to the downside. Their charts look weak, especially on the longer timeframe as they dip into oversold territory. On the shorter timeframe both the QQQ and SPY sit at 52 week lows while the IWM is holding only slightly higher. Use this information as you prepare for the coming week and trad’em well.

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