Is The Top In For The SPY? A Technical Analysis

The SPDR S&P 500 ETF Trust SPY has been hitting new high after new high this month but took a breather Monday.

The run-up into first-quarter 2021 earnings has been a major catalyst in the SPY's new highs but with earnings season just beginning, traders and investors may wonder why SPY is down. Is the temporary top in, or does the market need consolidation before another bullish move?

The SPY Chart: SPY has been trading under an ascending trendline since Nov. 16, 2020, and which has often acted as resistance. Each time SPY attempted to break through the ascending line it was rejected and the rejection was often followed by a period of consolidation, most notably the seven-week long tech rout in February and March.

On Friday, the SPY gapped up over the trendline, making a new all-time high, but was unable to sustain the move and opened back underneath the trendline on Monday. When SPY tried to retest the ascending trendline it rejected and wicked off of it.

Related Link: What's Moving The Market Monday?

On Monday, the SPY printed a red hammer candle indicating bulls bought the daily dip and a move higher may be in the cards over the coming days.

SPY is trading above both the eight-day exponential moving average (EMA) and the 21-day EMA which is bullish, however, it's extended 2.4% from the 21-day EMA, which indicates time may be needed for SPY and the 21-day EMA to meet up.

Although the SPY has some daily support near the $411 mark, the parabolic move north beginning March 30 left little price history above $397.83 indicating more price action near the $400 level may be needed.

Furthermore, the $400 level is important psychologically. In the future, $400 may need to be tested to see if it can hold as support.

Bulls want to see SPY pop back over the ascending trendline or for it to consolidate in a bullish pattern, such as in a daily bull flag, underneath it to gather power for another leg up. Consolidation would help for the eight-day and 21-day EMAs to catch up.

Bears want to see SPY lose support at $411.16, which would cause it to trade below the eight-day EMA for the first time since March 25.

It would likely be healthy, either way, for the SPY to eventually retest psychological support at $400. If that level held, bulls could be more confident $400 is the new low. If the $400 level was lost, bears could be more confident there's new resistance for a possible move lower.

S&P 500 Price Action: SPY closed down 0.48% at $415.25 Monday.