You Ask, We Analyze: Is The SPY Headed For A Blue Sky Run?

On Thursday evening, Benzinga asked its followers on Twitter what they’re buying at the open on Friday. From the replies Benzinga selected one ticker for technical analysis.

@AwesomeL25, @Skinnyp19 and @BN39540426 are buying SPDR S&P 500 SPY.

The SPY pulled back in the pre-market on Friday after it was reported Austria was reentering full lockdown and Germany may be next to follow, as COVID-19 cases surge through parts of western Europe. It's also monthly options expiry (opex), which means many institutional investors will be rolling off their options positioning and deciding where to reallocate the funds into calls and puts that expire further out.

See Also: 20 Stocks Moving in Friday's Pre-Market Session

The SPY Chart: After a bearish September, the SPY reversed course into a strong uptrend on Oct. 4 and between Oct. 13 and Nov. 5 the SPY soared over 9% to an all-time high of $470.65. After reaching the all-time high the Spy entered into a four-day consolidation phase before trading higher into Tuesday when the SPY attempted to make another new all-time high,

On Tuesday, when the SPY was unable to print another new all-time high, it created a bearish double top pattern at the level. On Wednesday, the SPY then printed an inside bar pattern in consolidation and on Thursday attempted another push toward all-time highs.

Further consolidation may be needed before the SPY gathers enough strength for a blue sky run because the relative strength index (RSI) has been running hot for an extended period of time. The SPY’s RSI has been at or above the 70% level since Oct. 28, which puts the SPY into overbought territory and can be a sell signal for technical traders.

The SPY is trading above the eight-day and 21-day exponential moving averages (EMAs), with the eight-day EMA trending above the 21-day, both of which are bullish indicators. Because the eight-day EMA has been guiding the SPY and acting as a key support level since Oct. 14, it would be a warning sign if the SPY closed a day trading below the level.

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• Bulls want to see the SPY curl up at the opening bell on Friday or for the SPY to set up an inside bar in consolidation to garner strength for a blue sky run in the week ahead. The SPY’s only resistance in the form of price history above is the previous all-time high.
• Bears want to see big bearish volume come in and drop the SPY down below Thursday’s low-of-day, which may indicate a downtrend could be in the cards. The SPY has support at $467.15, $463.75 and $458.49.