SPY: Targeting $432 (Technical Analysis)

Aug. 15, 2022 5:33 AM ETSPDR S&P 500 Trust ETF (SPY)14 Comments

Summary

  • This is a technical analysis article. The SPY is targeting a test of $432, but will it ever trigger that Buy Signal alert?
  • First, it has to trigger the Buy Alert we have preset at $428. It almost did that on Friday, with a “no-recession narrative” circulating, squeezing the shorts.
  • The recent pattern sees price pulling back each time it triggers one of our preset Buy Alerts. If that continues, look for a pullback from $428 to $424.
  • Also if the pattern continues, look for a run on $432 and then a pullback to $428.
  • At $432, we think this pattern fails. We expect the bear market, 40-week, moving average downtrend at $428 will kill this summer rally. Then target a retest of $364.
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Reaching the top of a robust, technical bounce in a bear market (NYSEARCA:SPY) can be dangerous. One misstep and down the SPY goes to retest the bottom. Last week there were no missteps, as the SPY clicked off our pre-set Buy Alerts at $416, $420 and $424 in quick succession. On Friday it almost triggered $428. What a week! However, can it repeat this performance for another week?

Our signals on the chart below are beginning to show some weakness, but no Sell signal yet. Our Point & Figure chart pegs resistance at $428. The weekly chart below shows the 40-week downtrend at $428. On Friday, the SPY failed to break above $428 resistance. We expect it will try again.

Why Was The SPY Up Last Week?

Last week was a nice move up. We may not know the reasons for weeks to come. Was it a short squeeze? Was it the robots at work with some trading strategy, or just blindly following the upticks? Or were all the big sellers just on vacation in August? We don't know and we don't have to know. The signals on the chart below will keep us trading long until they change. Then when we have a Sell signal we will go short. We keep changing our Sell Alerts as the market moves higher. The Sell Alert is currently set at $416.

Will This Rally End?

What do we know for sure? We know the summer rally will come to an end and we will see a Sell signal on the chart, just as we were seeing buy signals all of this past week. They were clicking off our pre-set Buy Alerts. The SPY almost triggered our $428 Buy Alert on Friday. Are we surprised? Yes we are, because this kind of movement in a bear market is unusual. It smells like some big shorts just got caught in the wringer.

Is This Market Manipulation?

One of the reasons technical analysis is used to follow the market is because there are so many unknowns. Traders learned a long time ago not to fight the tape. Unlike stocks, the market is so large that it is difficult to manipulate. We don't know the reasons for this buying, other than it is a "summer rally." However, we know the market is not being manipulated. We don't know why the buyers are buying, but we will eventual hear why. We do know that this is a low volume move up and big sellers are on vacation. It could be that simple.

Is The Bear Market Over?

We know this is still a bear market, as shown by the long term, downtrend in the 40-week moving average. It will take the "golden cross" of the 10-week moving above the 40-week to change that. That is a long way off. We know that the Fed will continue raising interest rates to achieve its target of 2.2% inflation. That could take us into 2023. We know that will take the economy down and the stock market. We know that the stock market is a leading indicator of the economy. This bear market is telling us the economy is going down in 2023. The stock market will turn up when it knows the economy will turn up. This bear market is not over yet, because the Fed is not done yet and the economy hasn't even turned down yet, never mind turning up.

Can The Fed Avoid A Recession?

Anything could happen to change the market from bear to bull. The war could end. Inflation could drop suddenly. Supply chain challenges might disappear as quickly as they came. Excess inventories may be dumped on the market, driving prices down. China may solve its lockdown problems. Consumer demand could drop rapidly due to inflation and a weaker economy. So yes, things could happen to avoid a recession and provide a soft landing, but will they happen? We don't think so. There is no indication of peace, nor any change on the natural gas squeeze by Russia that is taking Europe down. The consumer is not cutting back yet. If this bear market was changing to a bull market, we would see it on the chart. We don't see it. What we see is a low volume, technical bounce, called the "summer rally." There is no summer rally in September and October.

Could The Top Of This Rally Trap The Bulls?

It won't trap the day-traders because they close out their positions by the end of every day. The only bulls to be trapped will be the buy and hold investors that bought at the top. That includes money pouring into Index funds that immediately buys the top of any market. Index money just keeps buying in a bear market. In a low volume, August rally, that could be a driver, especially if the big sellers are on vacation.

Here is our weekly chart showing the low volume, rise in prices to challenge the bear market indicated by the 40-week downtrend at $428. Could price break above that level? Of course. Could it stay above that level? We don't think so because of the Fed and inflation. Meanwhile, enjoy the end of this summer rally in August. Stay tuned for the Sell Signal in our daily update.

SPY - Our Hold Signal

No Sell Signal Yet, But Money Flow Still In The Red (StockCharts.com)

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This article was written by

Tom Lloyd profile picture
6.75K Followers
Every day we look for index beaters for investing and trading.

Tom’s book "Successful Stock Signals for Traders and Portfolio Managers" is available on StockCharts.com and Amazon. The StocksInDemand.com system is designed to make money using a combined fundamental and technical grade for each stock. Tom received his MBA in Accounting from St. John's University, where he taught courses on the stock market. He marketed fundamental research, technical research and quantitative research to professional portfolio managers during his Wall St. career. 

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Short position through short-selling of the stock, or purchase of put options or similar derivatives in SPY over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Disclaimer: We are not investment advisers and we never recommend stocks or securities. Nothing on this website, in our reports and emails or in our meetings is a recommendation to buy or sell any security. Options are especially risky and most options expire worthless. You need to do your own due diligence and consult with a professional financial advisor before acting on any information provided on this website or at our meetings. Our meetings and website are for educational purposes only. Any content sent to you is sent out as any newspaper or newsletter, is for educational purposes and never should be taken as a recommendation to buy or sell any security. The use of terms buy, sell or hold are not recommendations to buy sell or hold any security. They are used here strictly for educational purposes. Analysts price targets are educated guesses and can be wrong. Computer systems like ours, using analyst targets therefore can be wrong. Chart buy and sell signals can be wrong and are used by our system which can then be wrong. Therefore you must always do your own due diligence before buying or selling any stock discussed here. Past results may never be repeated again and are no indication of how well our SID score Buy signal will do in the future. We assume no liability for erroneous data or opinions you hear at our meetings and see on this website or its emails and reports. You use this website and our meetings at your own risk.

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