SPY Trends and Influencers October 8, 2022

Last week’s review of the macro market indicators saw with the 3rd Quarter wrapped up, equity markets showed further weakness ending at or below the prior lows of the year. Elsewhere looked for Gold ($GLD) to continue its pullback while Crude Oil ($USO) continued to move lower. The US Dollar Index ($DXY) continued to trend to the upside while US Treasuries ($TLT) pulled back in their downtrend. The Shanghai Composite ($ASHR) looked to continue the move lower while Emerging Markets ($EEM) accelerated to the downside.

The Volatility Index ($VXX) looked to remain elevated and heading higher making the path easier for equity markets to the downside. Their charts looked weak, especially on the longer timeframe. On the shorter timeframe both the $QQQ and $SPY had now set new lows and still looked weak. The $IWM exhibited relative strength on the week, holding in consolidation. This was the first week since April that all 3 did not move in tandem.

The week played out with Gold pushing back over 1700 and then meeting resistance while Crude Oil reversed to the upside and ran higher all week. The US Dollar found support in a shallow pullback and reversed back higher while Treasuries continued to move lower. The Shanghai Composite was closed for the week and remains in a downtrend while Emerging Markets also reversed off the low and then fell back again midweek.

Volatility fell back early only to reverse mid week and end little changed. This put pressure on equities late in the week and they gave up early week gains. All closed Tuesday gaps on Friday and then continued to drop into the close Friday. This left the SPY, IWM and QQQ disappointing yet again in a failed 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 at a new cycle low in a strong downtrend. It surprised by moving higher on Monday and Tuesday, breaking above the recent consolidation and filling the September gap down. It held there Wednesday and Thursday, near the June low, touching the falling 20 day SMA. Friday saw it drop in pre-market trading after the non-farm payrolls report and it gapped down at the market open. With most of the damage done for the day it drifted lower from there enroute to a 2.8% drop. That actually left it up on the week but without any happy faces on investors. The daily chart shows the RSI turned back lower in the bearish zone with the MACD rolling over in negative territory after crossing up.

The weekly chart shows an inside week on the real body of the candle but with a long upper shadow suggesting more downside. Price does remain over the 200 week SMA but with the Bollinger Bands® opening lower. The RSI on this timeframe is in the bearish zone with the MACD negative and dropping. There is support lower at 360 and 358 then 356 and 353 followed by 348.20 and 346 before 344.70 and 342. Resistance higher sits at 364.50 and 369 then 373 and 376 before 380 and 386. Downtrend.

SPY Weekly, $SPY

With the first week of October in the books, equity markets continued the trend lower after a big 2 day tease at the start of the week to the upside. Elsewhere look for Gold to continue its bounce in the downtrend while Crude Oil is possibly reversing higher out of its downtrend. The US Dollar Index continues the strong move to the upside while US Treasuries continue their downtrend. The Shanghai Composite looks to continue the move lower after a week off while Emerging Markets continue the long term downtrend.

The Volatility Index looks to remain elevated and possibly moving higher making the path easier for equity markets to the downside. Their charts also look weak, especially on the shorter timeframe where the SPY and QQQ are back retesting the cycle lows while the IWM is faring only slightly better. On the longer timeframe the candle prints for the week signal indecision but with long upper shadows indicating further weakness. Use this information as you prepare for the coming week and trad’em well.

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