We are witnessing major market history here with the coronavirus pushing more investors into panic mode. ÃÛÌÒ´«Ã½s, however, tend to overshoot and undershoot, and the moves down are always quicker. The SPDR S&P 500 ETF (NYSEARCA:SPY) is now reaching more interesting levels to nibble on the long side for a trade.
Regular readers of this column are aware of how skeptical I was of the stock market rally that began in October 2019 and lasted into mid-February 2020. Economic growth hadn’t gotten better. The rally in stocks was also matched with a rally in gold and U.S. government bonds. As stocks overshot their long-term bull trends in a low-volatility chart chasing party, it was only a matter of time for the ice to break.
The coronavirus has in my eyes accelerated the inevitable ‘mean-reversion’ move in stocks and other risk assets. This now offers opportunity for traders and investors in a position to put some money to work.
To be clear, I am not advocating one goes into the market here in a major way and starts swinging around with large position sizes. In fact, for most market participants, this current volatility is not the time to do much of anything. Yet for a buy ‘trade’ in small size the odds are getting better by the day.
As I am typing this, the S&P 500 futures are again staring at an ugly down open, which means that the SPY ETF is inching ever closer to longer term support.
SPY Stock Charts
On the multi-year weekly chart we see that although not quite there yet, the SPY ETF has a confluence area of support in the $255 – $263 area, which is made up of the red 200-week simple moving average as well as the long term trend support line.
Given the market’s current volatile environment, it is certainly possible that a re-test of the December 2018 lows are in the cards. Those lows are around the $233 area.
Click to Enlarge
From a tactical trading perspective, what I am still waiting for is a real seller exhaustion day, followed by a ‘follow-through’ buying day in the SPY ETF. The SPY ETF often displays a specific high probability candlestick pattern for entry points. I will discuss this pattern in a special webinar this Thursday, March 12. Register .
Activate investors and traders could look to nibble on the SPY ETF in the aforementioned $255 – $263 area for a trade with an upside target around $280. Any drop and hold below the December 2018 lows would be a last resort stop loss.
Learn the highest probability candlestick pattern in Serge’s webinar. Register .
