The SPDR S&P 500 SPY took a nose dive on Friday after failing to regain an upper ascending trendline that we pointed out on Sept. 3. Since May 20, the SPY has fallen below the upper trendline on three previous occasions and tested support at the lower trendline.
The markets have two upcoming events that may have traders and investors feeling wary.
- Friday Sept. 20 is the monthly OpEx (monthly options expiry). Nearing OpEx a reduction occurs in option open-interest which reduces the amount of net long call positions. Traders will be watching as to whether institutions roll their positions out to further dates.
- On Sept. 21 and Sept. 22 the Federal Reserve will meet, followed by Jerome Powell’s press conference at 2:00 p.m. on the final day. Traders and investors will be listening for talk of tapering. If the Federal Reserve’s policy decisions do not affect status quo, tapering worries will be staved off until the next meeting in early November.
The SPY Chart
The SPY sold off 0.79% on high volume on Friday, indicating some fear came into the overall markets. When there is a sharp decline in a stock or ETF, there is almost always a bounce play opportunity for short-term traders and levels of support for long-term traders to take positions.
When the SPY retraced below its upper trendline on the three occasions in June, July, and August, it created a lower ascending trendline. If the SPY falls to touch the lower trendline again, there is a good chance it will bounce back up again. A touch of the trendline could be a good entry for bullish traders with a stop set if the SPY falls below the line.
The SPY’s relative strength index (RSI) is sitting at about 48%. When the SPY’s RSI fell toward the 42% mark on June 18 and July 19, its share price corrected up 2% and 4%, respectively, in the days that followed. If the SPY retraces to the lower ascending trendline, its RSI will hit near the important 42% mark again.
The SPY is trading below the eight-day and 21-day exponential moving averages (EMA), but the eight-day EMA is trending above the 21-day, which indicates indecision. The SPY is trading well above the 200-day simple moving average, which indicates overall sentiment in the markets remains bullish.
Bulls want to wait for the SPY to touch the lower trendline and then for big bullish volume to come in to demonstrate that the dip was bought. There is resistance above at the $445 level, the upper ascending trendline, and the previous all-time high of $454.05. Bears want to see the SPY lose support at the lower trendline. Below the level there is support in the form of price history at $441 and $437.
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