The SPY Loses A Key Level Wednesday: What's Next?
On Wednesday morning, market bulls and bears battled over the SPDR S&P 500 (NYSE:SPY) key support and resistance level of $412.
For the first 45 minutes after the opening bell, it looked as though the bulls had control and the SPY briefly popped over resistance. At 10:15 a.m. ET, however, the bears had won, and the SPY ended Wednesday's session down 2.12% at $405.41.
Inflation fears have spooked the market over the last three days, and on Monday the SPY was unable to rise over Friday’s new all-time high near $422.
This caused a bearish double top pattern to form, and since then the SPY has reacted to that pattern and lost over 4% of its value.
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The SPY Chart: After losing the $412 area, SPY retraced to its next support near the $407 level. The resistance level was created between April 5 and 7 and retested as support on April 8.
On Wednesday afternoon, the SPY bulls and bears battled over a support and resistance level at $407, and at the end of the day the bears won.
The $407 level will now act as resistance, and there is no solid support on the SPY now until the important $400 psychological level.
Both bulls and bears may not be disappointed to see the SPY revisit the $400 level, as it would give bears a logical place to sell their short positions and it would give bulls a logical place to buy positions for a bounce.
There is also gap near the $402 level but, contrary to stocks, the SPY can leave gaps behind on its chart due to extended trading hours on its futures.
The SPY is trading below both the eight-day and 21-day exponential moving averages, but the eight-day EMA is still trending above the 21-day EMA and for now this shows bearish indecision. If the SPY continues to trade down near the $407 level, the eight-day EMA will soon cross below the 21-day EMA, which could indicate further downside is in the cards.
Bulls want to see the SPY regain $407 as support and trade back up toward the $412 level in order to make a move back towards all-time highs.
A retest of the $400 level — without breaking through — would also give bulls a place to go long.
Bears want to see sustained bearish volume to push the SPY down to the $400 level. If the SPY is unable to hold the level of support, it could drop toward $397.
Related Link:The SPY Was Down Today. Here's Why.
SPY Price Action: The SPY closed regular trading hours down 2.12% at $405.41.
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