Will Buyers Save The S&P 500 (SPY) From Drowning?

From relics of the Wooly Mammoth, to puebloan ruins, pottery shards and petrogylphs, Bluff, Utah showcases a plethora of ancient history along with natural beauty.

This petroglyph was drawn on Sand Island, surrounded by the San Juan River.

About 2000 years old, this drawing tells the story of a man rescuing 2 people (possibly children) from the river.

So far this year, the S&P 500 ETF (NYSEARCA:SPY) made its high in January and its low in February.

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Since then, it has traded within that range of 252.92 (low) to 280.17 (high).

Moreover, the 50 week moving average, currently sitting at 263.40, has not been violated since March 2016.

As per the theme of the petroglyph, will the support near the bottom of SPY’s trading range, like our heroic ancestor, keep the price from drowning in a river of blood?

Since Friday, several key indices and Modern Family sectors changed phases.

Starting with the Dow Jones Industrials (NYSEARCA:DIA), that went into a warning phase on Friday and into a Distribution Phase today.

That means the price closed under the 200 DMA. It also means we need a second close beneath the 200 DMA to confirm that phase.

Otherwise, we would not be surprised to see dip buyers come back in should DIA retake 242.75.

Last week I wrote, “Although we have seen deterioration in Semi’s, Transportation, Biotech and Regional Banks, none have changed phases.”

No longer the case.

Semiconductors (SMH) and Regional Banks (KRE) went into an unconfirmed warning phase (price beneath the 50 DMA).

Transportation (IYT)-remember how well that performed until late last week? That too, is in an unconfirmed warning phase.

The Russell 2000 (NYSEARCA:IWM) and Brick and Mortar Retail (XRT) maintain their bullish phases.

NASDAQ 100 (QQQ) lost the most percentage-wise of the indices, but holds the 50 DMA thus far at 169.06, hence the bullish phase.

The S&P 500 went into its unconfirmed warning phase. Let’s focus here, especially since the Q1 earnings season was robust. And, predictions for Q2 are for even more robust earnings.

First off, one can argue that the solid earnings season proves how overheated the economy has become.

Secondly, one can argue that when earnings and market sentiment depart, it serves as a prediction for what the economic stats will look like in about 6 months out. Stagflation? Recessionary fears? Both are possible.

If that is the case, SPY just might be the key going forward.

If confirms the warning phase, next area of support comes in at 266 or the 200 DMA. Under there, we have the 50 week MA.

If the 50 WMA breaks, then we are looking at the 2018 low.

Furthermore, watch the Dow to see if institutional buyers show up. If so, I’d still think this selloff has created irreparable damage. However, at least it can lead to a new rally to sell into.

And that rally would give our ancient hero a chance to save a few more from drowning.

S&P 500 (SPY) 271.43 the 50 DMA pivotal.

Russell 2000 (IWM)166 pivotal resistance with support near 162

Dow (DIA) 242.75 the 200 DMA pivotal

Nasdaq (QQQ)169.08 the 50 DMA support to hold


Twitter:  @marketminute

The authors may have a position in the mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.