Now that the blog is up and running, it’s time to branch out from droning on about MVIS endlessly. There are other things that deserve coverage and what stock blog would be complete without the SPY. It is, after all, one of the more significant tickers out there.
This post will be a quick technical overview of the SPY on the monthly and weekly charts. By the end of it, you should know whether we can expect it to go up or down and potentially how much as well as some key levels of support and resistance to watch.
Let’s dive right into it.
Yes, I know it is mid-month and now isn’t the best time to analyze a monthly candle but understanding what is happening in the monthly will help give context and weight to any analysis done on the weekly, daily, and so on. Let’s get acquainted to what we’re looking at:
Bollinger Bands (21 period moving average mean, standard deviation of 3) – If you have followed me for any amount of time, you’ll know that I’m a fan of this setup to help validate linework and price action theory. Check out my Good Basic Chart Series on YouTube if you want to learn more about a simple, efficient, and useful basic chart if you’re new to technical analysis or want to add some new tools to your arsenal.
RSI – In my experience and opinion, the RSI is a fascinating and quite possibly the most useful lagging indicator that one can have on a chart. It gives you a measure of momentum, areas of support and resistance, and divergences that would otherwise be impossible to spot.
Basic and Advanced Linework – Drawing lines on a chart is simple. Drawing lines that have meaning and help you formulate a theory about price action, momentum, and direction is a bit of science and art mixed together. I use similar tactics as most retail traders along with more advanced techniques like Newtonian extrapolations and principals grounded in the study of econophysics for more advanced price action analysis.
Now that we have that out of the way, lets take a look at the chart. The blue line is a clone of the yellow support line. That is a Newtonian extrapolation, by the way. The yellow line is a simple dynamic support line that has shown remarkable validation for a long time. Currently, price on the monthly candle is meeting with that theoretical resistance at approximately $417 per share, which is the current price.
A glance at the Bollinger bands shows that the price still has room to run before it interacts with the band. That upper band will likely be an area of resistance, should price break through our little blue line. The mean of the array is at approximately $330 and I do not foresee that being tested anytime in the near future based upon this current price location and other indicators.
RSI is at 73, which is widely interpreted by retail traders to mean “overbought.” It is still showing higher highs and lows though and there are no divergences of note. This is what you want to see.
Static support (green line) is at approximately $385 and that remains unchanged from my previous coverage of SPY on the Gator Traders Discord.
In summary for the monthly candles – UP. Spy looks like it is healthy and can maintain these prices (or close to them) for the remainder of the month. Price is currently at a natural (theoretical) level of resistance currently with a potential upside at about $448.
It would be unwise to base an analysis solely on this though, since there is a lot of April remaining. One would be wise to look into the weekly and daily charts for more precise analysis, and that is exactly what we are going to do.
Weekly Candles . . .
This first image shows the same indicators and line work that we just went over on the monthly chart. I’m including it because it is important to walk key areas of potential support and resistance through multiple time frames to get an idea of what is going on inside those bigger candles. We’re looking at the DNA, so to speak.
The weekly candles, in relation to the monthly line work, looks exactly as it should. There are no concerns shown by the lagging indicators on the weekly chart either. So far, so good.
The actual candle from last week looks good. There isn’t some crazy gap up or down in price and there are no alarming qualities to the candle, like a large upper wick or a blood red coloration.
This alone isn’t enough to really dial in on price action but it should give traders a good idea that price is moving up and a pretty stable rate and does not appear in jeopardy of a correction other than the fact it is at an area of upper level resistance and does not provide a healthy risk to reward ratio if entering a possible long trade at this time.
Let’s change up the view some and see what we can discover with an Andrews pitchfork.
In the picture above you can see that I’ve completely changed how our nice, simple chart looks. It really is quite simple. I’ve added an Andrews pitchfork grounded to some significant pivot points in relatively recent market action and I’ve added an abstract dynamic resistance line showing a breakout. Look for the yellow line amidst all of the other colors. This is the stock market’s version of Where’s Waldo.
Lastly, I added a fib retracement to the upside, beginning at the very bottom of the COVID crash of 2020.
The pitchfork shows that price has not yet interacted with the centerline of the geometry of this particular ripple (or flow) in this market. That is an important detail since it has recently interacted with the bottom of the fork. The fork is well validated and you can see how many direct hits the centerline has along the tail end, the outer boundaries, and the centerline of the array.
The fib retracement also shows great validation at many, many areas. The most important line to look at here is the 1.618 (161.8%) line at the top. Look where it falls. $447. That’s pretty darned close to $448 that we looked at with the Bollinger Bands on the monthly.
$447-448 also intersects an area of the pitchfork at the upper 61.8% line of the fork. That is yet another important detail.
RSI is at a luke warm 71 with a nice movement coming out of a small bearish divergence that led to a small correction rather than the apocalyptic reversal that the muppets on TV were screaming about a few weeks back. Wow has their tune changed lately or what?
Theory Time . . .
If things continue working like I think they will, and I see no reason to believe otherwise, then the SPY seems destined for $447 in the near term. The monthly and weekly charts are looking healthy and momentum is on the side of bulls here.
Of course there are levels of resistance hidden in the underlying geometry of the market. Let’s detail those:
- Current Price – is a resistance level on the monthly chart. Why wouldn’t it be? I’m referring to the Newtonian extrapolation of the basic support line. This is a theoretical level of resistance. When it works, it works well. When it doesn’t…well it was a theory, right?
- Centerline of the pitchfork – I’m expecting that this will be a powerful level of resistance and not easily overcome. Experience, study, and enormous amounts of back testing shows that these centerlines are brutes and can easily crush a run. Expect that resistance to begin around $425 or so if price manages to clear current hurdles and march onward. This is a dynamic resistance area so it will rise in price each week. The rate of climb is approximately $3 per week for this dynamic resistance area.
- Weekly Bolliger band array – I did not talk about it yet, but the upper level of the bollinger bands on the weekly chart align pretty closely with the centerline of the pitchfork. Always look for this confluence of techniques at prices to figure out where really tough support and resistance may be. This is currently at $426
- 1.618 Fib retracement line – We spoke about this. It’s a beautiful, mathematical target with a confluence of techniques happening all in the $445 to $450 range. This is where the upper levels of the monthly Bollinger bands, the fib target, and the .618 line of the fork all converge. Expect monumental resistance in this area should prices reach it.
In conclusion . . .
I am expecting SPY to remain bullish at least until the $420’s area. From there, I’ll be watching hard for prices on the weekly chart to close above the centerline of that pitchfork. If it were to do so, I’d be willing to bet $440s are coming shortly thereafter.
If this all comes to pass, I would expect prices to correct or retrace from the $440s down to the $420s. This would make a good, natural area to make plays to both the upside and the downside.
At current prices, I do not see a healthy risk to reward ratio to enter a trade, since a natural area for a stop loss that gets protection from major buying pressure exceeds the reward value where I expect major selling pressure. Notably, this would be a stop loss of around $385-390 and a reward of about $425. In my opinion, the value is not worth the risk, currently.
That opinion changes above that centerline. From there, I’d expect prices to run up quite a bit and I would personally feel safe about having a stop loss at about current price with a reward area in the $440s.
The alternate scenario is a return below $400 and a retest of the $385-390 area. Personally, I do not think it looks like that to me.
Hopefully this helps someone out there. If not, it will at least be an interesting study for the weeks to come to see how this theory plays out.
Do you have a different theory of SPY’s price direction and destiny near term or do you agree with what I’m seeing? Let me know in the comments below! While you’re at it, please hit that little heart and leave me a like if you value this content and subscribe if you want to make sure you don’t miss future posts. It’s free!