The SPDR S&P 500 (NYSE:SPY) was trading about 0.45% higher on Tuesday, tapping the 200-day simple moving average (SMA) on the daily chart.
The 200-day SMA is an important bellwether. Technical traders and investors consider a stock trading above the level on the daily chart to be in a bull cycle, whereas a stock trading under the 200-day SMA is considered to be in a bear cycle.
The 50-day SMA also plays an important role in technical analysis, especially when paired with the 200-day. When the 50-day SMA crosses below the 200-day SMA, a death cross occurs, whereas when the 50-day SMA crosses above the 200-day, a bullish golden cross takes place.
A death cross occurred on the SPY’s chart on March 14, which dropped the ETF into a long-term bear cycle. By June 17, the SPY was trading as much as 17.86% below the 200-day, making the ETF extended to the downside. At that point, the SPY’s relative strength index was measuring in at just 31%, the lowest the indicator had hit since Jan. 27.
Since that date, the SPY has bounced back considerably, surging almost 19% higher and is currently testing the 200-day SMA for the first time since April 21.
Traders and investors will be watching to see if the SPY can regain the level and if the ETF can remain above the area for a period of time,and if a golden cross will occur.
Want direct analysis? Find me in the BZ Pro lounge! Click here for a free trial.
The SPY Chart: The SPY began trading in a strong uptrend on July 14, with the most recent higher low printed on Aug. 9 at $410.22 and the most recent confirmed higher high formed at the $417.62 level the day prior. The SPY hasn’t retraced significantly to print a higher low in five trading days, making it likely the ETF will pull back over the coming days.
- The 200-day SMA is a major level and the SPY is unlikely to blast through the area without consolidating first. Traders can watch for the ETF to print either a bull flag pattern under the 200-day or for the SPY to trade sideways under the level, possibly to form an inside bar pattern before regaining the area as support.
- Bearish traders will want to see the SPY continue to reject the 200-day and then for big bearish volume to come in and throw the ETF into a decisive bear cycle. Unless the 200-day SMA is regained, the most recent rally could be a short bull cycle within a longer-term bear market.
- A pullback, at least to form a lower high, is likely to come soon because the SPY’s relative strength index (RSI) is measuring in at about 74%. When a stock or ETF’s RSI reaches or exceeds the 70% level, it becomes overbought, which can be a sell signal for technical traders. The last time the SPY’s RSI reached above the 70% level was between Nov. 2 and Nov. 10, 2021, which was followed by a 5% pull back between Nov. 22 and Dec. 3 of that year.
- The SPY has resistance above at $433.69 and $447.06 and support below at $426.56 and $420.76.
