March 17, 2011
Both the S&P 500 Index (SPX) and its tracking ETF the S&P Deposit Receipts (NYSE: SPY) have been in freefall after several weeks of what appeared to be normal corrective activity.
No doubt the declines are news related, but seldom do we have news as dire as this. Japan is the world’s third largest economy and the earthquake and tsunami damage appears to be just the start of problems, with the potential for a nuclear meltdown making huge areas of the already shattered country uninhabitable, not to mention the potential for radiation concerns in other countries.
Japan’s economy will take a tremendous hit and will take years to recover. The U.S. debt they hold could be needed for the rebuilding and this would directly affect our markets and our ability to capitalize our rising debt levels.
The SPDRs have broken decisively below their 50-day moving average which had been rising but will almost without doubt begin moving lower in coming days.
The SPDRs have also broken below strong support at SPY 130.71 which was the August 11, 2008 rally high and a level that had been holding as a bottom for the correction until this week.
There is support down at the previous correction lows at about SPY 118 a share. This is also where the rising 200-day moving average currently is.
Strong news related selloffs can have strong reversals at any time. A rally back to the prior support at SPY 130.45 would not be unexpected. But the damage has been done and we would now expect that level to act as resistance.
We are looking for the SPDRs to test SPY 118 in coming weeks.
The Fibtimer.com (http://www.fibtimer.com) ETF Timing Strategy has a position in the S&P 500 SPDRs .