The SPY Consolidates 6% Surge After Fed Holds Rates, Job Market Shows Signs Of Softening: A Technical Analysis

The SPDR S&P 500 SPY opened slightly higher Monday after the Federal Reserve decided to hold interest rates steady and job gains data came in lower-than-expected last week.

Investor sentiment rose last week on hopes the Fed has ended its tightening campaign and could begin to cut rates during the second half of 2024. The positive outlook caused the SPY to log its best week this year, rising 5.85% between the Oct. 27 close and Friday.

On Monday, the market ETF was consolidating, forming an inside bar on lower-than-average volume.

Whether or not the market will continue higher imminently or continue to trade sideways to consolidate for a few days remains to be seen, but the downtrend has been negated and the SPY has regained the 50-day simple moving average (SMA).

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

More experienced traders who wish to play the SPY either bullishly or bearishly may choose to do so through one of two Direxion ETFs. Bullish traders can enter a short-term position in Direxion Daily S&P 500 Bull 3X Shares SPXL and bearish traders can trade the inverse ETF, Direxion Daily S&P 500 Bear 3X Shares SPXS.

The ETFs: SPXL and SPXS are triple leveraged funds that track the movement of the SPY, seeking a return of 300% or –300% on the return of the benchmark index over a single day.

It should be noted that leveraged ETFs are meant to be used as a trading vehicle as opposed to long-term investments.

The SPY Chart: The SPY regained the 50-day SMA on Friday and on Monday, the ETF was consolidating above the area near the top of Friday’s trading range, which has settled the SPY into an inside bar pattern. The pattern leans bullish in this case because the SPY was trading higher before forming the inside bar.

• Although the SPY negated its downtrend on Thursday by rising above the most recent lower high, which was formed on Oct. 24 at $424.82, the ETF hasn’t yet retraced to confirm a new uptrend with the formation of a higher low. When the SPY falls to at least print a higher low, it could provide a solid entry point for bullish traders who aren’t already in a position.
• Although the SPY regained the 50-day SMA it has become detached from the eight-day exponential moving average (EMA), which is contributing to the ETF’s need for consolidation. The ETF may continue to trade sideways for a period of time to allow the eight-day EMA to catch up to the SPY’s price.
• The SPY has resistance above at $436.79 and at $447.79 and support below at $429.80 and at $420.76.