SPY Trends and Influencers 9/24/2011

by Greg Harmon

Last week’s review of the macro market indicators looked to bring more consolidation for Gold ($GLD) in a broad range, but with the bias to the down side if forced to pick a break direction. Crude Oil ($USO), the US Dollar Index ($UUP) and US Treasuries ($TLT) all also look to be headed lower in the short run. The Shanghai Composite ($SSEC) looks to continue lower while Emerging Markets ($EEM) consolidate further. Volatility ($VIX) looks to remain elevated with any break bias to the downside as Equity Index ETF’s $SPY, $IWM and $QQQ are set up to extend their gains. The QQQ is by far the strongest of these index ETF’s and should be watched for broad direction. The correlations to watch for driving the Equity markets this week are the inverse relationship to the US Dollar and US Treasuries. Should these areas reverse and move strongly higher Equities will likely fall. Gold should play less of a role as it is moving in a broad range.

The week began with Gold moving sideways before a massive collapse and Crude Oil falling lower. The US Dollar Index and US Treasuries also drifted before launching higher and as warned knocking the Equity Indexes lower. The Shanghai Composite continued to consolidate while Emerging Markets were sucked into the downdraft again. What does this mean for the coming week? Lets look at some charts.

As always you can see details of individual charts and more on my StockTwits feed and on chartly.)

SPY Daily, $SPY

SPY Weekly, $SPY

The SPY gapped lower out of its bear flag Thursday and then held that range Friday, at the closing low support since early August. The RSI is pointing lower and the MACD crossed negative on the daily time frame. All of the SMA’s are sloping lower on both time frames except for the 100 week SMA. The weekly chart also shows a bearish RSI but the MACD is diverging, starting to improve. It is not as certain of the flag break on the weekly chart. The bias is to the downside for next week with support below 112 at 110.26 and then 108 and 104. Any bounce above the gap level of 114 should see resistance within the bear flag and first near 116.

Rolling into the last week of the third Quarter, Gold and Oil are ready for more downside. The US Dollar Index and US Treasuries look to continue higher. The Shanghai Composite and Emerging Markets also look to continue their down moves. Volatility looks to remain elevated and possibly break higher. The equity Index ETF’s, SPY, IWM, and QQQ are all looking better to the downside. The QQQ again may be the key to holding the market together. If it loses support of the flag, the SPY and IWM could take the whole market lower. A spike in Volatility and continued moves higher in Treasuries and the Dollar Index should ensure it. Use this information as you prepare for the coming week and trade’m well.

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