Hi everyone. As we end the month and the first half of the year, I figured that I would give an update on the most-watched ETF:
SPDR S&P 500 ETF Trust (ARCA: SPY)
SPY continues to trade in an ascending broadening wedge pattern with higher highs and higher lows. RSI is following suit, with higher highs and higher lows. Some bearish divergence has showed up at the highs as SPY prints an “M” shape at 550.
The “M” shape is usually indicative of consolidation or a local top, as it did in March earlier this year. This means participants should be wary of the possibility of a pullback.
In the near-term, SPY in the middle of the Feb’23 resistance trendline (in orange) and the Jan’24 support trendline (in pink) in what can be seen as a short-term ascending channel. I’ll be looking for either a breakout or a breakdown.
A breakout should see a longer-term move towards the 2.618 Fib extension at 639.57. The current rejection of resistance should take us lower towards the 1.618 Fib extension at 528.24 and the Jan’24 support trendline. A breakdown will be reminiscent of the Jul’23 high, and we can see a downward consolidation into Jul’23 highs at 459.44.
Another level to watch would be the Jan’22 ATH at 479.98, which was the last major ATH before the top. A “retest and hold” could happen there, but we have to take it level by level.
The weekly chart is beginning to curl over on RSI, which could be suggestive of a bearish divergence. The next few weeks will be crucial in determining whether a top is in, although the inverted hammer candle and this week’s doji candle does favour bears for the next few months. A bearish crossover on the stochastic + follow through on RSI to the downside in the next few weeks will confirm a move lower.
However, one thing I do have to emphasise is this: Just because SPY might undergo a move lower does not necessarily mean all stocks will follow. There will be rotation, and I will be dedicating my time to finding rotation plays before they move.
Despite the weakening setup on SPY, I am reiterating a HOLD rating. The long-term setup on SPY is still bullish provided it makes a higher low and holds the Jul’23 high, which was the last significant pullback.
Sentiment: HOLD (Unchanged)
Summary (with Price Targets - NFA):
Key for SPY is whether it breaks out of the Feb’23 resistance trendline (in orange) or whether it breaks down from the Jan’24 support trendline (in pink)
Breakout will see a longer-term measured move towards the 2.618 Fib extension at 639.57, while a breakdown will see a move towards prior ATHs at 479.98, with a possible extension towards the Jul’23 highs at 459.44
All right, that’s all from me. Till next time!
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