This blog was posted, and accompanying video recorded, on Tuesday, November 17, 2015. It addresses the mid to longer-term outlook for the S&P 500 spider ETF, symbol SPY. A quick note that I provide regular spy analysis in both my Weekly Spy Report, delivered every Sunday for the following week, and my Monthly ETF Snapshot, delivered on the first trading day of the month.
I like to start with big picture analysis, and work my way into a near-term focus. Let’s back up a bit to February 2013, when the SPY elicited a long-term, 3-5 year buy signal by closing the month above a decade-long slightly descending channel top. Under these scenarios, when the market pushes beyond a longer-term horizontal formation and into uncharted territory, one of the first formulas I calculate is a full extension of that formation. It was a target I illustrated in the March 2013 edition of the Monthly ETF Snapshot, and since then have continued to remind subscribers of it every week – currently found at 233.44. This level happens to line up nicely within an ascending channel top projected off the 2009 low that comes in at 231.31 for the month of November 2015.
It was in fact the bottom of the same channel formation, currently at 186.92 for the month of November, that contained the August 2015 selloff low, and remains capable of containing selling through 2016. Nearer-term upside resistance at 214.07 can contain strength into the 1st Qtr, once tested the market vulnerable to retesting the 186.92 channel-bottom again within 1-2 months. In essence, for what could be the next 3-5 months, the SPY remains in a congestive, narrowing wedge between 186.92 support and 214.07 resistance, these levels changing monthly, inside of which two-sided activity can play out well into the first quarter of 2016.
Nonetheless, given the longer-term bullish dynamic, a monthly or even weekly settlement above the 214.07 formation should not come as a great surprise, and would present our next meaningful midterm buy signal, then indicating 3-5 months of upward continuation to our long-term target in the lower 230.00’s. Downside, a violation of the 186.92 formation would not indicate an end to the almost seven-year bull market, but would in fact signal a quick test of 180.93, the start of a narrowing range of support down the 174.19, rising monthly and capable of containing selling through the balance of the decade. The 174.19 level is an ascending one third speed line projected off the 2009 low, an indicator I’ve used in my analysis for many years and value for its trend defining capabilities. While certainly not expected over the next year, a monthly settlement below the 174.19 speed-line would present an ugly equity market, and probably macroeconomic scenario over the following year or two of activity. We’ll cross that bridge if we get to it.