SPY to the MOON🚀🌕??!!..... Or Freefall back to Earth🪂🌎??!!
It is not a coincidence that just as the year is coming to an end one of the main indicators of market sentiment, the SPY, has reached a critical point of decision. Since the start of 2023, the market has largely been in a rally, as represented by the price movement of the SPY. Zooming out on the daily chart and you can quickly gain insight as to why the SPY's current price level, and recent price movement is so important.
One of the first areas that draws the eye's attention is the sharp decline beginning 2/20/2020 and ending 3/23/2020. This is where we will begin. At this time the markets were full of extreme FEAR as COVID threatened our very existence. While the illness never quite took us to the brink of extinction as some would have had you think, it caused widespread devastation in many aspects of life, and would go on to change the world as we know it forever. To put the move into perspective, the SPY fell more than -35%, giving back all of its gains from the previous two years in a little over a month's time. Before the start of the decline, the SPY was actually trading at ATHs. This would prove to have been the most opportune time to buy as the market would go on to not only rally for the rest of the year but all of 2021 as well. It's easy to say that now with the benefit of 20/20 hindsight however, at the time everything was doom and gloom with no ending in sight. The SPY not only recovered, but seemed to defy gravity, as a strong trend of breaking and making new ATHS developed throughout the year. By the end of the year the SPY was trading around its newly created ATH with no reasons for slowing down. The SPY had actually confirmed a double bottom pattern created in the month of December by closing for seven consecutive trading sessions above the neckline. Surely one would expect the SPY to retest the neckline before a stronger move up. It failed the retest and entered the Bear Markert of 2022.
After what looked like consolidation above the neckline of a double bottom pattern, price action actually materialized into a double top pattern. Once price fell below the neckline, it rallied for a retest of the area. This time it passed. It is important to note the same area coincides with the neckline of the failed double bottom pattern. Therefore, the charts were confirming one pattern while at the same time invalidating the other. After setting a new ATH on 01/04/2022, the SPY would essentially spend the year in freefall before ultimately bottoming out in October. On 10/13/2022 the SPY bounced perfectly from the Golden Zone of a fib retracement drawn from 3/23/2022(COVID Low) to 01/04/2022(ATH) and has been climbing higher ever since. This has been accomplished through a series of descending channels. Price has traded to a high, only to pullback in a descending channel on a retest of the last respected low. Once price has broken the top of the channel it has typically led to a move higher. A deeper understanding of where price has come from will bolster one's ability to determine where price is going.
Fast forward to the end of 2023 and the current price of the SPY is sitting at an interesting level to say the least. It is ideally positioned from a technical standpoint to either breakout or breakdown. On a larger scale the price has reached the top of the descending channel drawn on the chart with the grey background. This is a longer-term view of price action starting from the ATH made on 01/04/2022. On a smaller scale the price has broken out of, yet another descending channel identified as the bull flag drawn on the daily chart. The flag of this pole is represented by a fib retracement from a passed retest of the current 52wk low ending at the current 52wk high. It should be noted that the SPY has already bounced from the Golden Zone of this retracement creating this upward momentum, while completing a false breakdown of the flag body in the process. All of the major moving averages have an upward sloping trajectory, and the SPY has confirmed a higher high, after a series of lower highs and lower lows.
As for what to expect, if past price behavior is any indication of future price action, then price should be expected to form some sort of consolidation before ultimately picking a direction for 2024. There are many factors that will influence price action at this time of the year that can skew the market's true intended direction. Profit taking, tax loss harvesting, and rebalancing to name a few. The trading year is in the books for the most part and December will be about finishing old business. We could see a spike in either direction, only to be followed by a reversal to begin the new year. Monitoring price action mainly as a spectator for the remainder of the year however, the possibility of A+ setups across the market should not be ignored with the SPY trading at such critical levels.
The levels provided in the chart should serve as an early roadmap to begin 2024. At this moment it is the blank canvas on which the market will develop its image. The challenge will be to react to the levels and not front run them. You must trade what you SEE and not what you WANT. THE MOVE HASN'T HAPPENED YET! BE PATIENT! If traded properly, these levels should be good for at least the next six months, maybe more. There will be countless setups with money to be made to the upside as well as the downside. Remember never to get too BULLISH and never get too BEARISH. Updates provided as price develops.
One of the first areas that draws the eye's attention is the sharp decline beginning 2/20/2020 and ending 3/23/2020. This is where we will begin. At this time the markets were full of extreme FEAR as COVID threatened our very existence. While the illness never quite took us to the brink of extinction as some would have had you think, it caused widespread devastation in many aspects of life, and would go on to change the world as we know it forever. To put the move into perspective, the SPY fell more than -35%, giving back all of its gains from the previous two years in a little over a month's time. Before the start of the decline, the SPY was actually trading at ATHs. This would prove to have been the most opportune time to buy as the market would go on to not only rally for the rest of the year but all of 2021 as well. It's easy to say that now with the benefit of 20/20 hindsight however, at the time everything was doom and gloom with no ending in sight. The SPY not only recovered, but seemed to defy gravity, as a strong trend of breaking and making new ATHS developed throughout the year. By the end of the year the SPY was trading around its newly created ATH with no reasons for slowing down. The SPY had actually confirmed a double bottom pattern created in the month of December by closing for seven consecutive trading sessions above the neckline. Surely one would expect the SPY to retest the neckline before a stronger move up. It failed the retest and entered the Bear Markert of 2022.
After what looked like consolidation above the neckline of a double bottom pattern, price action actually materialized into a double top pattern. Once price fell below the neckline, it rallied for a retest of the area. This time it passed. It is important to note the same area coincides with the neckline of the failed double bottom pattern. Therefore, the charts were confirming one pattern while at the same time invalidating the other. After setting a new ATH on 01/04/2022, the SPY would essentially spend the year in freefall before ultimately bottoming out in October. On 10/13/2022 the SPY bounced perfectly from the Golden Zone of a fib retracement drawn from 3/23/2022(COVID Low) to 01/04/2022(ATH) and has been climbing higher ever since. This has been accomplished through a series of descending channels. Price has traded to a high, only to pullback in a descending channel on a retest of the last respected low. Once price has broken the top of the channel it has typically led to a move higher. A deeper understanding of where price has come from will bolster one's ability to determine where price is going.
Fast forward to the end of 2023 and the current price of the SPY is sitting at an interesting level to say the least. It is ideally positioned from a technical standpoint to either breakout or breakdown. On a larger scale the price has reached the top of the descending channel drawn on the chart with the grey background. This is a longer-term view of price action starting from the ATH made on 01/04/2022. On a smaller scale the price has broken out of, yet another descending channel identified as the bull flag drawn on the daily chart. The flag of this pole is represented by a fib retracement from a passed retest of the current 52wk low ending at the current 52wk high. It should be noted that the SPY has already bounced from the Golden Zone of this retracement creating this upward momentum, while completing a false breakdown of the flag body in the process. All of the major moving averages have an upward sloping trajectory, and the SPY has confirmed a higher high, after a series of lower highs and lower lows.
As for what to expect, if past price behavior is any indication of future price action, then price should be expected to form some sort of consolidation before ultimately picking a direction for 2024. There are many factors that will influence price action at this time of the year that can skew the market's true intended direction. Profit taking, tax loss harvesting, and rebalancing to name a few. The trading year is in the books for the most part and December will be about finishing old business. We could see a spike in either direction, only to be followed by a reversal to begin the new year. Monitoring price action mainly as a spectator for the remainder of the year however, the possibility of A+ setups across the market should not be ignored with the SPY trading at such critical levels.
The levels provided in the chart should serve as an early roadmap to begin 2024. At this moment it is the blank canvas on which the market will develop its image. The challenge will be to react to the levels and not front run them. You must trade what you SEE and not what you WANT. THE MOVE HASN'T HAPPENED YET! BE PATIENT! If traded properly, these levels should be good for at least the next six months, maybe more. There will be countless setups with money to be made to the upside as well as the downside. Remember never to get too BULLISH and never get too BEARISH. Updates provided as price develops.
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