The equity markets finished last week strong, but they are still unable to find footing overall. The rallies in the S&P 500, for example, have not lasted enough to break out from the descending price trend. There might be light at the end of the tunnel, but the risk for another leg lower is still too real. Today, we will outline opportunities for the SPDR S&P 500 ETF Trust (NYSEARCA:SPY).
We will also highlight a few important support lines that must hold for the opportunities to pan out. In addition, we identify a few giga stocks that would make or break this campaign. These are stocks that have been more stubborn and refuse to fall. The goal is to flush out the entire 2020 and 2021 rallies.
But first, let’s put the blame where it belongs: squarely on the U.S. Federal Reserve’s strategy. The macroeconomic malaise is from Fed Chair Jerome Powell’s monetary policies. They were too aggressively accommodative for too long. And now they are scaring investors silly with a very hawkish tone. They have no middle ground because they went from extremely friendly to kind of hostile.
In reality, they have failed at their two mandates for two years straight. Last year, they created inflation on purpose, thereby breaking promise on one mandate. This year, they’re destroying the economy — their second mandate — on purpose to fix their 2021 creation. Now that experts admit the Fed was wrong, there are repercussions for stock prices.
|SPY||SPDR S&P 500 ETF Trust||$374.23|
The SPY Stock Showdown
Investors do not trust the financial leadership in this country anymore, so they lash out by selling stocks. Therefore, SPY stock has not mounted a serious rally in a while. We have had powerful bullish bursts, but these remain opportunities to book profits or fix broken trades.
Within three weeks, equities will hit a pivotal period and the outcome will settle this in a binary way. Meanwhile, the bears will continue having all the tailwinds, so they have an unfair advantage. The bulls’ primary focus is to muster up every ounce of strength to hold support. Otherwise, the floor will open up in a trap door and SPY stock would quickly fall another 20%.
But if buyers miraculously hold support, then can try to chip away at prior failing zones. The most significant source of resistance will likely surface around $390 per share. This is where the buyers failed on Jun. 28 and where dark pools of money have interest. The fight will be harsh and the bears are not likely to cede it easily.
Conversely, there are equally important support zones below. They extend through $374, with a recent stand out support at $370.30. Most investors don’t pay much attention to level details, but giant pools of money do, according to Tradytics.
The technical battle we just laid out should resolve itself this month. Both sides have a chance, but the bulls clearly have a tougher task. The stocks that will make a difference are Apple (NASDAQ:AAPL), Tesla (NASDAQ:TSLA), Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG). These are hold out stocks that have so far refused to revisit the pre-pandemic breakout levels.
They stubbornly still have between 25% to 70% of froth from the 2020 to 2021 rallies. The worry now is that that they will finally join Amazon (NASDAQ:AMZN) and Salesforce.com (NYSE:CRM) down at the pandemic baseline. I am still optimistic that these leaders are holding the spot for the fallen to rejoin the green team. If so, then SPY can still make new highs this year. It is an unpopular opinion, but when everyone is blind to an opportunity, it becomes more interesting to market makers.
Options experts know that the job of markets is to punish the most investors possible. Currently, the prevailing theme is to own put options. My bet is that they will die for max loss. So, the bearish posture that retail investors have is actually silent support for SPY prices. This is an invisible advantage that most experts miss. It could be strong enough to help base these markets. I would hold long positions, but in a tactical matter, not an all-in investment.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.