SPDR S&P 500 ETF Trust (SPY): Buy the Market, Or Just Respect It?

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The S&P 500 — as represented by the popular SPDR S&P 500 ETF Trust (NYSEARCA:SPY) — is higher by about 2.2% as of Tuesday’s close. That’s nothing to write home about, but if we put this in the context of the current environment, the relative stickiness of the SPY is worth respecting.

Beat the Bell: SPDR S&P 500 ETF Trust (SPY)I was taught early on in my career by a mentor to always respect both sides (views) in the market so I’m ready for any outcome. Traders and investors must deal with uncertainty on a daily basis, and it is the level of open-mindedness that ultimately separates the winners from the losers.

Fundamental analysts, economists and technical traders have long tussled about whose respective brand of analysis is more viable. After nearly 20 years in this business, I’ve found that a mix of fundamental, economic and technical analysis works best for me. In the current environment — where economic, as well as corporate growth, has been slowing for the better part of the past 18 months — I have to respect the relative strength of the S&P 500.

Fundamentally speaking, I see little reason for the SPY ETF to stage a break out to fresh all-time highs anytime soon, but since price action ultimately is the only thing that pays, I am willing to see both sides.

As counterintuitive as it might seem, the current ultra-low interest rate environment has actually forced many market participants into large-cap U.S. equities and indices such as the S&P 500. Yield-starved institutional and private investors are chasing down anything with any positive yield and dividend-paying stocks among those areas. As such, the SPY is getting a bid not so much because of any hopes for respectful growth, but simply because investors are being forced there.

See both sides.

SPY ETF Charts

Technical analysts will note that market breadth has improved in recent weeks and months, and looking at the charts, it is abundantly clear that the SPY ETF is consolidating below a well-defined line of resistance around the $213 mark on a weekly closing basis.

I always remind ye faithful that the longer a stock/index/commodity or currency stays below well-defined technical resistance, the better the odds of a breakout ultimately becomes, even if said breakout is only temporary. From where I sit, the SPY needs to clear the $113 area on a weekly closing basis to have a more believable breakout.

SPY ETF chart weekly
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From a daily angle, the SPY continues to show a series of V-shaped reversals that represents this yield-chasing environment where few alternatives to large-cap dividend stocks exist.

SPY ETF daily
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The SPY does look to be near-term overbought, and I am not looking to chase it higher right here right now. However, upon the next consolidation period, a next push higher that satisfies a weekly close above or near $213 could see the SPY ETF lift into the $220 area over the next few months.

Always see both sides, and live to trade another day.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/07/spdr-sp-500-etf-trust-spy-buy-respect/.

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