Unless you have been hiding under a rock somewhere you might have noticed the uptick in stock market volatility as of late January. Stocks since then have almost aimlessly chopped back and forth, yet the S&P 500 as represented by the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) is now giving active investors and traders a well-defined technical area on the charts to place long-side bets against into earnings season.
Over the course of my thus-far twenty-year trading career, I have found that one of the most important decisions to make at various junctures in the market is whether to add to positions or to take a step back. A similarly important decision is whether to play individual stocks or just look to the broader market and play it with an ETF or futures contract.
At this juncture with the below technical setup in mind and as we head into earnings season, it in my eye makes sense to look at playing the broader market for a trade rather than overly expose oneself to individual stocks.
SPY ETF Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
On the multiyear weekly chart, we see that after overshooting its trading range in January, the SPY ETF classically mean-reverted back into the channel and retested the lower support line. This lower support line around the mid $250’s currently also lines up with the yellow 50-week simple moving average, which is to say that there is confluence support that active investors and traders could look to play the index against on the upside for a trade.
Two technical “things” of concern, however, are the lower highs the SPY ETF made in March and the still-not-oversold-enough readings of the MACD momentum oscillator at the bottom of the chart. Because of this, the call for me for now is to play the SPY ETF for a bounce but not in hopes of it reaching new and lasting all-time highs anytime soon.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
On the daily chart, note that the 50-week moving average from the weekly chart also lines up with the red 200-day simple moving average as support. The SPY ETF so far remains trading in a multi-week sideways range with support around $255 and resistance around $267. Considering that on the weekly chart above, the SPY ETF is now bouncing off the lower end of the channel, traders could make a bet here to see the SPY rally back higher into the mid-to-high $270’s before finding another potential lower high.
Any meaningful bearish reversal and at very last resort a push below $255 would be a stop-loss trigger.
Check out Anthony Mirhaydari’s Daily Market Outlook for April 13.
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