The SPDR S&P 500 SPY gapped down about 0.5% to start Thursday’s trading session and continued to slide intraday after printing a very bearish Marubozu candlestick on Wednesday.
On Jan. 13 and Tuesday, the SPY crossed above the 200-day simple moving average (SMA) on the daily chart, which gave traders hope the bear market could be finally coming to an end. On Wednesday, the market ETF rejected from a long-term descending trendline just above the 200-day, however, which has been holding the SPY down since Jan. 4, 2021, causing sellers to rush into stocks and major indices.
Ahead of big-tech earnings, which will kick off after the market closes on Thursday when Netflix is expected to report, traders are watching for signs the recent decline is either a pullback or a hard rejection. If it’s the former, the recent lower prices could serve as a bear trap. If it’s the latter, the SPY may have pulled off another big bull trap, like it has done on numerous occasions over the last year.
Bullish traders want to see Netflix print a fourth-quarter earnings beat and for the stock to receive a positive reaction to its results. If that happens and the SPY holds above $386.27 on Thursday, the uptrend could continue and the ETF could make another run up to the descending trendline.
If Netflix prints an earnings beat, it could give traders and investors hope that other big tech companies will also showed they fared well over the last quarter of 2022.
If Netflix prints an earnings miss or provides lower-than-expected guidance, it could indicate other big tech companies will also show their businesses took a downturn in the lead up to the holidays, which is likely to push the SPY lower.
Even if Netflix prints a beat, there’s a chance the stock and the market could suffer a bearish reaction. When the streaming giant printed a fourth-quarter earnings beat on Jan. 20, 2021, Netflix fell over 21% the next day and the SPY declined almost 2%.
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The SPY Chart: Between Dec. 16 and Jan. 5, the SPY traded mostly sideways and on Jan. 6, the market ETF broke up bullishly from the horizontal pattern, confirming a new uptrend was intact. The most recent higher low within the trend was printed on Jan. 10 at $386.27 and the most recent higher high was formed at the $400.23 mark on Tuesday.
- On Thursday, the SPY was working to print a doji candlestick, which could indicate the next higher low has occurred and the ETF will reverse course and trade higher on Friday. If that happens, bullish traders will want to see the SPY regain the 50-day SMA as support quickly.
- Bearish traders want to see the SPY close Thursday’s session near its low-of-day price, which would cause the ETF to print a bearish kicker candlestick, indicating lower prices are on the horizon. If that occurs, the SPY will negate its uptrend and a downtrend could be on the horizon.
- Bullish traders and investors are hoping that the price action that took place between Jan. 12 and Wednesday isn’t a repeat of what happened between Nov. 30 and Dec. 14 (white circle).
- The SPY has resistance above at $394.17 and $400 and support below at $385.85 and $381.30.
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