Time to Short the SPDR S&P 500 ETF

The SPY ETF has been going strong, but there are signs of cracks forming

For the broader market, it’s an eternal truth that headline drivers come and go. And right now there are signs that today’s oxygen-deprived and giddy bulls are facing one wall they’re unlikely to overcome on the price chart of the SPDR S&P 500 ETF (NYSEARCA:SPY). This marks a good spot for shorting the SPY ETF. Let me explain.

Private Equity Funds Won't Turn Investors Into Mr. Wonderful
Source: Shutterstock

It has been a terrific eight weeks and counting for bullish SPY ETF investors who either held their breath or better yet, ignored the market’s multiple bearish narratives and took advantage of panicky price behavior. Of course, now more than ever, the December bottom looks like a case of “what was I thinking?” as most people were anxiously selling and not buying an extremely oversold S&P 500.

But all good things do come to an end, and for the SPY ETF, that day of reckoning looks to be near.

Bottom line, today’s overly bullish atmosphere — in which bad news is greeted optimistically in the SPY and good news is taken at face value — is already seeing signs of wear and tear beneath the surface.

What am I talking about? Actually, it’s more like what am I seeing in more than a few SPY constituent stocks that are considered market barometers — and the price action is not good.

Some Weekly Charts Affecting the SPY ETF

Take transport and logistics behemoth FedEx (NASDAQ:FDX). While shares have rebounded over the past several weeks along with the SPY ETF, the weekly chart shows a name which led the market lower and continues to display relative weakness during the current rally.

And more concerning technically, shares of FDX are now setting up in a bearish flag pattern against lateral resistance and a broken 62% support level dating back to 2016’s corrective low.

Do you want another “prime” example of how today’s bulls have taken things a bit too far? Politics and headline folly aside, technology and retail giant Amazon (NASDAQ:AMZN) is warning that another wave of selling is in the cards.

Okay, so it’s hard to feel sorry for any longer-term investors in AMZN for more than the past year. Nonetheless, shares have lagged the SPY in recent weeks, and that should be a concern. Even more of a worry? In recent days, that weakness has found the stock failing to clear its key 200-day simple moving average and consolidating in the lower half of a multi-week volatile, but mostly lateral, trading range.

Still want more evidence? How about Apple (NASDAQ:AAPL), Facebook (NASDAQ:FB) or Caterpillar (NYSE:CAT)? That’s right, more market heavyweights that despite their gains of the past several weeks are showing more determined signs that all is not well with the SPY ETF.

But if that doesn’t convince you, maybe it’s enough to simply appreciate what a very well-overbought rally into resistance looks like? I like to think so. And currently, you don’t need to look any further than the S&P 500.

SPY ETF Daily Chart

In our observation, the SPY ETF is showing very real reasons why investors should consider locking in profits, maybe reduce open losses or even take on a short. Bottom line, by our reckoning and which we hope you’ll agree with, the S&P 500 enjoys a very nice risk-to-reward set-up against a wall, barrier or whatever you want to call it on today’s price chart for a bearish short stock position.

Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies and related musings, follow Chris on Twitter @Options_CAT and StockTwits.

Article printed from InvestorPlace Media, https://investorplace.com/2019/02/time-to-short-the-spdr-sp-500-etf/.

©2019 InvestorPlace Media, LLC