The SPY Tops Out, Beginning Bullish Consolidation Pattern: What To Watch In The Stock Market

Zinger Key Points
  • The SPY negated its inside bar pattern on Tuesday but may be settling into a bull flag pattern.
  • When the SPY eventually tops out, volatility may increase.
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Amid a seemingly ceaseless cycle of rate hikes, analysts, even before the revelation of next week's Federal Reserve decision, are already setting their sights on July, anticipating another interest rate increase.

 

Ahead of the June meeting, the SPDR S&P 500 ETF Trust SPY opened near flat on Tuesday but rallied intraday, rising 0.22%.

The mostly sideways trading showed the SPY advancing modestly on lower-than-average volume, forming a possible bull flag pattern, which suggests consolidation.

The CBOE Volatility Index (VIX), tracked by the ProShares Ultra VIX Short Term Futures ETF UVXY, and other tickers, plunged over 5% during Tuesday’s trading session, working its way into oversold territory, which suggests a bounce.

When the bounce takes place, it will indicate volatility is increasing. Traders wishing to trade the volatility in the stock market can use MIAX’s SPIKES Volatility products. The products, which are traded on SPIKES Volatility Index SPIKE, track expected volatility in the SPY over the next 30 days.

Want direct analysis? Find me in the BZ Pro lounge! Click here for a free trial.

The SPY Chart: The SPY dropped briefly under Monday’s low-of-day on Tuesday, which caused the market ETF to break down from an inside bar on the daily chart. The move down came on lower-than-average volume, however, which negated the pattern.

  • The slightly lower prices may have caused the SPY to form a bull flag pattern. As long as the SPY continues to trend sideways or slightly lower on declining volume, and doesn’t fall under the eight-day exponential moving average (EMA), the bull flag will remain intact. If the pattern is eventually recognized, and the SPY breaks up from the flag on high volume, the measured move is about 4.8%, which suggests the ETF could reach up to $446 in the future.
  • If the SPY falls below the eight-day EMA, we could see an acceleration in selling. This would not only negate the bull flag pattern, but also potentially reverse the current uptrend, which would likely introduce heightened volatility into the market.
  • The SPY has resistance above at $436.79 and $447.06 and support below at $426.56 and $420.76.

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