Understanding SPY: Bull vs Bear Case

Hi everyone! In this article, I will be outlining the bull and bear cases on SPY for the coming few days and weeks.

Firstly, let’s take a look at the “BULL” case:

The bull case suggests that the stock market has essentially bottomed at 348. We are currently moving upwards and creating higher highs and higher lows in a rising wedge pattern. This was partly the reason why we had a very strong pivot level at the 392.49 level marked out on my chart. It was a “convergence” level, where SPY broke out of its falling wedge pattern while bouncing off the aforementioned level. Additionally, we formed the inverse head and shoulders pattern on SPY’s daily chart, which cumulated in a backtest of the 200DMA around 392-393. This is a textbook inverse head and shoulders pattern with a left inverse shoulder, head, right inverse shoulder, breakout and backtest of support level before heading higher.

With Powell due to speak twice this week and economic data coming out, it’s possible that we push higher to hit the upper trendline of the rising wedge which can likely be extrapolated to around 420. In recent times, Powell has been dovish and his words have helped to push markets higher. That being said, with him scheduled to testify in front of politicians as part of a semiannual testimony on monetary policy, the market is waiting for him to speak before moving in either direction.

Now, let’s take a look at the BEAR case:

If you remove all the trendlines (but not the indicators), and just look at the SPY daily chart, you can see a bearish head and shoulders pattern:

This pattern suggests that there is a head at the 420 area, two shoulders at the 410 area, and a neckline at the 380 area. Interestingly enough, on a lower timeframe (i.e. 1 hour), you can also see a fractal of the larger head and shoulders pattern, albeit with different values for the different components of the pattern:

This time round, we see a head at 418-420, two shoulders at the 406-408 area which we closed at yesterday, and a neckline at the 392 area.

On the daily chart, we painted a hanging man candle which could be indicative of a short-term trend reversal on SPY to the downside.

However, do note that for any bearish continuation or confirmation of the bear case, we will need to lose the 200DMA. Otherwise, it is more likely that we will continue to push higher back towards the 420s.

With that, I hope that you eliminate any bias you might have in terms of fundamentals (market stays irrational longer than you can stay solvent) and look at the technical analysis aspect more in the coming weeks and months. This is most certainly a trader’s market!

Good luck everyone! If you enjoyed this post, then leave a like and/or a comment on my post and follow me for more of such posts! If there are any stocks that you would like me to chart, please leave them in the comments and I’ll look at them in my free time!

@TigerStars @TigerWire @MillionaireTiger @CaptainTiger @小虎活动

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