SPY Trends and Influencers September 17, 2022

Last week’s review of the macro market indicators saw heading into the September Quadruple Witching and Index Rebalancing week, equity markets showed strength with a rebound solid three day move higher to end the week. Elsewhere looked for Gold ($GLD) to pause in its pullback while Crude Oil ($USO) tried to reverse higher. The US Dollar Index ($DXY) continued in the uptrend while US Treasuries ($TLT) continued their downtrend. The Shanghai Composite ($ASHR) looked to consolidate while Emerging Markets ($EEM) moved to new lows.

The Volatility Index ($VXX) looked to pull back towards the normal zone making the path easier for equity markets to the upside. Their charts showed some strength, especially on the longer timeframe with bullish engulfing candles. On the shorter timeframe the $SPY, $IWM and $QQQ might have just confirmed higher lows after the higher highs in August. Continuation to the upside and through the August high would confirm an intermediate trend reversal higher.

The week played out with Gold breaking lower Tuesday and ending the week through support while the bounce in Crude Oil met resistance and it moved lower. The US Dollar ran to just short of the prior high and held there while Treasuries moved down to nearly 8 year lows. The Shanghai Composite fell to a new 4 month low while Emerging Markets continued lower to test the 2018 bottom.

Volatility rose up swiftly early in the week and held near the top of the range for the last month. This put pressure on equities and they responded a sharp move lower Tuesday. All found support by Wednesday but then continued to drop the rest of the week. This left the SPY, IWM and QQQ at 2 month lows. What does this mean for the coming week? Let’s look at some charts.

SPY Daily, $SPY

The SPY came into the week moving higher off would looked to be a higher low, towards a possible confirmation of a reversal of trend. It continued higher Monday, but with the last 3 candles sporting smaller bodies and gaps, signaling potential exhaustion. Tuesday saw a big gap down following the CPI report and then continuation lower all day.

It continued to move lower the rest of the week, testing that potential higher low Thursday and then breaking it Friday to close the week at a 2 month low. The daily chart shows the Bollinger Bands® opening to the downside to allow a further decline. The RSI is falling back in the bearish zone after breaking the midline while the MACD is negative and dropping.

The weekly chart printed a bearish engulfing candle that has now retraced more than 61.8% of the bounce from the June low. The RSI on this timeframe is also dropping back from the midline with the MACD negative and turning back down. There is support lower at 382 and 380 then 376 and 373 before 369 and 364.50 then a retest at 360. Resistance higher sits at 386 and 389.50 then 391.50 and 394.50 before 397.50 and 400.50. Downtrend.

SPY Weekly, $SPY

Heading into the week of the September FOMC meeting, equity markets pulled the rug out from under traders, giving up the nascent reversal off the early September low and driving to new 2 month lows. Elsewhere look for Gold to continue its pullback while Crude Oil continues to the downside as well. The US Dollar Index continues to trend to the upside while US Treasuries continue their downtrend. The Shanghai Composite looks to continue the short term move lower while Emerging Markets continue their downtrend.

The Volatility Index is slightly elevated and threatening to move higher, making the path easier for equity markets to the downside. Their charts look weak, especially on the longer timeframe following bearish engulfing weekly candles. On the shorter timeframe the IWM, the QQQ and the SPY all printed hammer candles for a possible reversal, but at a lower low and the lowest level in two months, negating the hope of a reversal.

Clearly Wednesday’s FOMC meeting will play a big role in whether markets continue towards a retest of the June lows or hang on and reverse higher. All 3 Index ETF charts are trading in lockstep. Use this information as you prepare for the coming week and trad’em well.

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