SPY Trends And Influencers December 29, 2018

SPX Monthly Chart

Last week’s review of the macro market indicators noted that heading into the Christmas shortened week, equities looked the worst they had in at least 2 years. Elsewhere looked for gold to continue in its uptrend while crude oil continued the path lower. The U.S. dollar index continued to mark time moving sideways, while U.S. Treasuries were biased higher short term. The Shanghai Composite and Emerging Markets had resumed their downtrends.

Volatility (NYSE:VXX) looked to remain elevated and creeping higher keeping the bias lower for the equity index ETF’s SPDR S&P 500 (NYSE:SPY), iShares Russell 2000 (NYSE:IWM) and Invesco QQQ Trust Series 1 (NASDAQ:QQQ). Their charts were in solid downtrends on both the daily and weekly view, with the IWM and QQQ in unofficial bear markets, off more than 20%, with the SPY close behind.

The week played out with gold continuing higher, while crude oil dropped early but recovered late in the week. The U.S. dollar remained in a tight range consolidating, while Treasuries bounced up and down like ping pong balls. The Shanghai Composite continued its move lower, but Emerging Markets found support and bounced.

Volatility shot up Monday in the short session but reversed it all Wednesday and held firm the rest of the week. The Equity Index ETF’s reacted with a violent move lower Christmas Eve, but even bigger reversal Wednesday with follow on Thursday after a deep intraday drop and reversal. They ended the week gapping up and then filling. What does this mean for the coming week? Let's look at some charts.

SPY Daily

SPY Daily Chart

The SPY came into the week driving lower out of consolidation. It continued lower Monday to a 20 month low on a Christmas Eve massacre. After the break, it gapped higher though and drove to a better than 4% gain. Thursday looked to reverse with a gap down open and drive lower. but a spectacular intraday reversal saw it close up almost 1% on the day. It ended the week with a slight pullback.

A nearly 3% gain on the week and the first positive week in the last 4 but still below the breakdown level. The daily chart shows the RSI stalling as the price filled the gap Friday. The MACD has turned up though from extreme levels. Continuation next week would need to move over 262.50 give the bulls some swagger.

The weekly chart shows the current bottom at a 50% retracement of the move up from the 2016 low. The RSI is bouncing off of the oversold line with the MACD driving lower. There is support lower at 246 and 241.50 then 238 and 236. Resistance above comes at 248 and 249 then 250.50 and 254. Bounce in Downtrend.

SPY Weekly

SPY Weekly Chart

With one trading day left in the year equity markets put in a strong case for a reversal this week. They are still a long way from confirming a bottom though and not just a bear flag build. Elsewhere look for gold to continue in its uptrend, while crude oil may possibly pause in the downtrend. The U.S. dollar Index continues to consolidate sideways while U.S. Treasuries pause in their uptrend.

The Shanghai Composite and Emerging Markets continue to show an easier path to the downside. Volatility looks to remain elevated keeping the bias lower for the equity index ETF’s SPY, IWM and QQQ. Their charts showed a strong bounce during the week but not enough to do anything to alter the current downtrends. Very short-term uptrends are beginning, but it is too soon to declare a bottom. Use this information as you prepare for the coming week and trade them well.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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