To The Moon

Hi everyone! Been away for a while as I’ve been on a break. Here’s an update on the most-watched ETF:

SPDR S&P 500 ETF Trust (ARCA: SPY)

After watching SPY’s price action for several weeks, I am now of the opinion that SPY is merely repeating July 2023’s 3-month pullback fractal, which gives me a final price target of 453.52 for the downside over the next few months.

However, why is the price action similar?

If you draw a trendline, you’ll notice a resistance trendline that has resulted in lower highs and lower lows. We’ve just broken above this resistance trendline as seen above. The July 2023 pullback also had similar price action at the start. We’re also trading in a bearish ascending channel pattern that is forming higher highs and lows, similar to the July 2023 pullback. The next glaring similarity is that of the unfilled overhead gap. In July 2023, we had one at 453-455. We now have a similarly sized gap siting at 515-517. Back then, the gap remained unfilled, and I expect similar action or just a brief look over the 515 level before we reject and breakdown.

In the nearer term, I expect SPY to head back towards the 503.39 level, which is near the prior island gap support level of 503.02 from February this year. Once this retest is completed, we will head towards 515.82 to form another short-term higher high.

Thereafter, we’ll have to see what the market wants to do. I do think we’ll form a bearish divergence and head lower from there, but I’m not going to let bias cloud my judgement.

Ultimately, I don’t expect SPY to bottom until September or so. This year, I think seasonality will be off by 1-2 months to throw off “perma” bears and bulls. Note how the market dumped in a historically bullish month (April), and now everyone is touting May as “sell in May and go away”.

All I can say is… if you want to buy the broader indices, you’ll have time to average down in a few months.

Sentiment: HOLD (Unchanged)

Summary (with Price Targets - NFA):

• Current price action is similar to July-October 2023 pullback fractal, with a breakout over the resistance trendline, bearish ascending channel and unfilled overhead gap in play. Ultimate price target for this drawdown over the next few months should be 453.52 (or an undercut of this level)

• Current climate favours short-term swing trades and/or day trades over “buy and hold” strategies, at least until the drawdown is near completion. Risk-adverse investors can consider capital preservation via entering common shares hedges (i.e. SPXL, SQQQ) or via protective put positions when the broader market indices are at resistances

• Seasonality has been off tangent this year, in stark contrast to 2023. I would highly suggest not paying too much attention to it, but just remember that VIX tends to peak in September and October tends to be when the market bottoms

All right, that’s all for this newsletter. Till next time!

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