Trade of the Day: Extreme Fear Offers Opportunity in S&P 500 SPY ETF

The SPY ETF is putting in historic moves, which also breeds opportunity for the aware market participant

We are witnessing major market history here with the coronavirus pushing more investors into panic mode. Markets, however, tend to overshoot and undershoot, and the moves down are always quicker. The SPDR S&P 500 ETF (NYSEARCA:SPY) is now reaching more interesting levels to nibble on the long side for a trade.

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Regular readers of this column are aware of how skeptical I was of the stock market rally that began in October 2019 and lasted into mid-February 2020. Economic growth hadn’t gotten better. The rally in stocks was also matched with a rally in gold and U.S. government bonds. As stocks overshot their long-term bull trends in a low-volatility chart chasing party, it was only a matter of time for the ice to break.

The coronavirus has in my eyes accelerated the inevitable ‘mean-reversion’ move in stocks and other risk assets. This now offers opportunity for traders and investors in a position to put some money to work.

To be clear, I am not advocating one goes into the market here in a major way and starts swinging around with large position sizes. In fact, for most market participants, this current volatility is not the time to do much of anything. Yet for a buy ‘trade’ in small size the odds are getting better by the day.

As I am typing this, the S&P 500 futures are again staring at an ugly down open, which means that the SPY ETF is inching ever closer to longer term support.

SPY Stock Charts

Source: TradingView

On the multi-year weekly chart we see that although not quite there yet, the SPY ETF has a confluence area of support in the $255 – $263 area, which is made up of the red 200-week simple moving average as well as the long term trend support line.

Given the market’s current volatile environment, it is certainly possible that a re-test of the December 2018 lows are in the cards. Those lows are around the $233 area.

Click to Enlarge
Source: TradingView

From a tactical trading perspective, what I am still waiting for is a real seller exhaustion day, followed by a ‘follow-through’ buying day in the SPY ETF. The SPY ETF often displays a specific high probability candlestick pattern for entry points. I will discuss this pattern in a special webinar this Thursday, March 12. Register here.

Activate investors and traders could look to nibble on the SPY ETF in the aforementioned $255 – $263 area for a trade with an upside target around $280. Any drop and hold below the December 2018 lows would be a last resort stop loss.

Learn the highest probability candlestick pattern in Serge’s webinar. Register here.

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