Thanks Powell! The SPY Plunges Again After Fed Crashes Wall Street's Party: When Will It Bounce?

The SPDR S&P 500 SPY was tumbling again on Friday after Federal Reserve Chair Jerome Powell crashed the Wall Street party on Wednesday with predictions inflation will remain stubbornly high in 2023 and the unemployment rate will rise to over 4%.

Prior to the grim outlook, the market had rallied on weaker-than-expected consumer price index data that showed inflation ticked lower in November.

The Fed eased back on its Dec. 14 rate hike, but investors were looking to the central bank for news the U.S. could steer clear of a recession. That news didn’t come.

Friday is also quadruple witching, which can bring high levels of volatility to the indices as investors close out their futures and monthly options positions prior to their expiry.

As the holidays approach, retail traders and investors are hoping a Santa Claus rally could be on the way, but so far it appears a miracle would be needed for any meaningful turnaround.

For short-term traders, a bounce is at least likely to come next week because the SPY has plunged over 7% without bouncing to print a lower high on the daily chart.

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The SPY Chart: The SPY is likely to bounce on Monday or Tuesday, but traders will want to watch for signals to develop before taking any bullish positions in a stock or ETF.

If the SPY gaps down again on Monday, a three-gap-down-reversal pattern will print, which could indicate a bounce is on the horizon.

• If that happens, bullish traders will want to see the SPY begin to develop a bullish reversal candlestick, such as a doji or hammer candlestick, which could indicate the temporary bottom is in sight and a bounce will come on Tuesday. If the SPY bounces into the market close on Friday and prints a hammer candlestick, it could indicate the bounce will come on Monday.
• When the ETF gapped down on Friday, it fell under the 50-day simple moving average, which is bearish. When the SPY bounces, the level may act as resistance. The 50-day SMA is trending at about $385, which is also a resistance level in terms of price history.
• The SPY has resistance above at $385.85 and $394.17 and support below at $381.30 and $371.48.