S&P 500 Technical Analysis: Weekly Update
Written by Lawrence on November 30, 2009
Every week we present an analysis of the previous week’s market action as depicted by SPY (the index tracking ETF for the Standard and Poor’s 500 index) and our outlook for the coming week.
In the past holiday-shortened week, news of debt concerns in Dubai led to painful sell-offs in many stock markets in the US, Europe and Asia. SPY printed a new yearly high on Wed (25 Nov) but closed sharply lower on Fri (27 Nov) in the wake of the Dubai news outbreak. In Fri’s action, SPY opened sharply lower, printed new lows and broke the 20-day SMA but still managed to recover over 1% from the lows and reclaimed the 20-day SMA as the trading session progressed. This action marked a significant price support at 108.30.
We are holding on to a slightly bearish outlook for SPY in the coming days and weeks. With several sectors looking weak in the past few weeks (e.g. financials and homebuilders) and the specter of more negative news to surface, it would not be a stretch to imagine SPY breaking below support in the near term. If that happens, we could see a quick retest of the 50-day SMA. Interestingly, we would want to look out for buying entries at the 50-day SMA. SPY had tested the 50-day SMA in late Oct/early Nov and rebounded sharply higher to new highs subsequently. Would that happen again this time round? In any case, we would expect the bulls to put up a strong fight at the 50-day SMA, hence buying at that point with a tight stop loss would be a better risk-reward bet.
On the other hand, it is possible that SPY will move significantly higher from current levels and break the highs set last week (resistance at 111.70). If that happens, we will shift our stance to bullish. However, for the same reasons mentioned above, we will stay away from putting on significant long positions at current levels until we see a decisive break of 111.70 resistance. As SPY had previously tested that level but failed to break above it several times in the past two weeks, it will be a very important level to watch out for.
Be careful out there!
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