Navigating the Indecisive SPY: What Investors Should Know

When running my StockCharts Technical Rank (SCTR) scan on Thursday, I was a little surprised to find that 75 exchange-traded funds (ETFs) and large-cap stocks made the cut, especially after Wednesday’s selloff. It was a little ray of hope.

A quick sweep of the list didn’t reveal a particular sector or asset class to be dominant. The stocks and ETFs represented a broad segment of the stock market.

After going through the list, one security that caught my eye was the SPDR S&P 500 ETF (SPY), which closely follows the S&P 500 ($SPX). After the 2.98% drop in the S&P 500 on Wednesday, is SPY still technically strong? Let’s look at the daily SPY chart (see below).

FIGURE 1. DAILY CHART OF SPY ETF. The last two bars in the chart show that SPY is wavering. It’s not breaking below the mid-November lows, yet it doesn’t seem to want to move higher. It is trading below its 50-day moving average, the RSI is indicating slowing momentum, and the S&P 500 Bullish Percent Index is below 50. Chart source: StockCharts.com. For educational purposes.

Since mid-August, the SCTR (pronounced s-c-o-o-t-e-r) score has been hovering between the 70 and 90 levels. It’s now almost at 80. On Thursday, the ETF’s price closed at around the same level as Wednesday’s and is below its 50-day simple moving average (SMA). The relative strength index (RSI) is getting close to its oversold level.

The bottom line is that even though the SPY has a SCTR score of 79, and it hasn’t broken below the mid-November low, the RSI indicates momentum is weak, and the S&P 500 Bullish Percent Index ($BPSPX) is at around 41%, i.e., leaning toward bearishness. 

So, after a selloff like we just had, does it make sense to consider adding long SPY positions at this level? At the moment, the SPY is acting indecisive, but at some point, it’ll have to make a directional up or down move. A reversal with strong follow-through would be a signal to go long. The indicators displayed in the chart of SPY should support the reversal. If, on the other hand, SPY breaks below the mid-November low and the SCTR score falls below the 76 threshold, it would be a signal to unwind some positions. 

This is one chart to monitor as we wind down the year. We’ll see if Santa comes through next week!

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.