SPY the Anchored VWAPs during Choppy Price Action
Updated
Primary Chart: Long-Term Anchored VWAPs and YTD Down Trendline
Whenever price action gets confusing, it can help to take a step back and consider the larger picture again. Many experts have weighed in after each consecutive low in this year's bear market, with some claiming that the lows are in, and others claiming price has much further to fall after the inevitable relief rallies.
Placing the Current Price Action into Context with Anchored VWAPs with Different Lengths
The Primary Chart shows several important VWAPs anchored to both longer-term and more recent swing highs and lows. The anchored VWAPs all help provide a broader picture of what is happening with price on major equity indices like the S&P 500, which is tracked and analyzed here using the S&P 500 ETF
SPY. (Note that SPY values are roughly equivalent to SPX values, so SPX is typically a multiple of 10 times SPY, though SPY typically trades at a slightly lesser level than SPX after conversion.)
The YTD trendline that has contained price (light blue) also confirms what the VWAPs show. This downtrend line has rejected price multiple times even after powerful, sharp multi-week rallies. When this line is broken to the upside and the VWAPs are reclaimed as well, one might begin to discuss whether the trend structure could be changing and whether the lows are more lasting. Until such time, rallies should be viewed with some level of suspicion. Price could rally hard, as it has done multiple times already this year, and convince many that the lows are in, only to reverse and continue the downtrend right at the critical resistance levels.
Placing the Current Downtrend into an Even Larger Context
A recent SquishTrade analysis from October 1, 2022, discussed the 13-year secular uptrend in the S&P 500 (
SPX), noting that SPX had fallen below the midpoint of the 13-year channel. The post with that analysis can be found here.
Supplementary Chart: 13-Year Secular Uptrend on Logarithmic Chart
To summarize the analysis from that prior post, the current trend—a bear market—could continue until the lower edge of the channel without changing the very long-term "secular" uptrend at all. The lower edge of the channel lies at $3000-$3100 in the coming months. More specifically, the prior post on this 13-year secular uptrend noted the likelihood that price could come into the lower edge of the channel without changing the structure of the longer-term secular uptrend:
"Eventually, price may likely come into contact with the lower edge of the channel—and the long-term secular uptrend will still be intact and neatly contain this bear market. In other words, this bear market at the level of primary trend will not invalidate the secular uptrend, unless price breaks that line around SPX 3000-3100 (considering where the line lies in 3 to 6 months)."
Since the September 30, 2022, low, price has now recovered to retest the midpoint of that channel at approximately SPX 3756, and price is chopping around the midpoint now.
________________________________________
Author's Comments:
(1) Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate in the comment section. Shared charts are especially helpful to support any opposing or alternative view.
(2) This technical-analysis view does not constitute a trade recommendation or trade setup. Instead, it attempts to offer technical commentary that describes and analyzes price levels, trends, price action, or the broader technical environment as of the publication date. Technical-analysis commentary does not equate to trade setups or recommendations. Within a given price environment, traders bear responsibility for their own trading strategy, risk tolerance, and time frame, and for any due diligence associated with such trades.
(3) This technical-analysis viewpoint could change at a moment's notice, e.g., when price violates a key level of invalidation for a particular view. Further, proper risk-management techniques are vital to trading success.
(4) To the extent countertrend price moves are discussed, consider that countertrend or mean-reversion trading, e.g., trading a rally in a bear market, remains higher risk and lower probability even for the most experienced traders and investors.
DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified / licensed financial adviser or other financial or investment professional before entering any trade, investment or other transaction.
Whenever price action gets confusing, it can help to take a step back and consider the larger picture again. Many experts have weighed in after each consecutive low in this year's bear market, with some claiming that the lows are in, and others claiming price has much further to fall after the inevitable relief rallies.
Placing the Current Price Action into Context with Anchored VWAPs with Different Lengths
The Primary Chart shows several important VWAPs anchored to both longer-term and more recent swing highs and lows. The anchored VWAPs all help provide a broader picture of what is happening with price on major equity indices like the S&P 500, which is tracked and analyzed here using the S&P 500 ETF
SPY. (Note that SPY values are roughly equivalent to SPX values, so SPX is typically a multiple of 10 times SPY, though SPY typically trades at a slightly lesser level than SPX after conversion.)- The anchored VWAP from the pandemic low on March 23, 2020, is gold colored and remains above price as resistance with a flat to slightly downward slope. This VWAP has a value of 385.51 as of today.
- The VWAP anchored to the all-time high on January 4, 2022, is orange colored and slopes downward well above price. This VWAP currently has a value of $416.71 as of today.
- The Primary Chart also shows two blue-colored VWAPs anchored to recent major swing highs and lows: (i) the swing high on August 16, 2022, and the swing low on June 17, 2022. These also have a sharp downward slope and are above current prices as resistance. These VWAPs values range currently from about 389.08 to $390.57.
- Lastly, the VWAP anchored to the September 30, 2022, low, which is the YTD low, is red colored and sloping upward with price above it. Provided price can hold above this VWAP, and as long as it remains upward sloped, it suggests shorter-term trends remain choppy to upward.
The YTD trendline that has contained price (light blue) also confirms what the VWAPs show. This downtrend line has rejected price multiple times even after powerful, sharp multi-week rallies. When this line is broken to the upside and the VWAPs are reclaimed as well, one might begin to discuss whether the trend structure could be changing and whether the lows are more lasting. Until such time, rallies should be viewed with some level of suspicion. Price could rally hard, as it has done multiple times already this year, and convince many that the lows are in, only to reverse and continue the downtrend right at the critical resistance levels.
Placing the Current Downtrend into an Even Larger Context
A recent SquishTrade analysis from October 1, 2022, discussed the 13-year secular uptrend in the S&P 500 (
SPX), noting that SPX had fallen below the midpoint of the 13-year channel. The post with that analysis can be found here.Supplementary Chart: 13-Year Secular Uptrend on Logarithmic Chart
To summarize the analysis from that prior post, the current trend—a bear market—could continue until the lower edge of the channel without changing the very long-term "secular" uptrend at all. The lower edge of the channel lies at $3000-$3100 in the coming months. More specifically, the prior post on this 13-year secular uptrend noted the likelihood that price could come into the lower edge of the channel without changing the structure of the longer-term secular uptrend:
"Eventually, price may likely come into contact with the lower edge of the channel—and the long-term secular uptrend will still be intact and neatly contain this bear market. In other words, this bear market at the level of primary trend will not invalidate the secular uptrend, unless price breaks that line around SPX 3000-3100 (considering where the line lies in 3 to 6 months)."
Since the September 30, 2022, low, price has now recovered to retest the midpoint of that channel at approximately SPX 3756, and price is chopping around the midpoint now.
________________________________________
Author's Comments:
(1) Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate in the comment section. Shared charts are especially helpful to support any opposing or alternative view.
(2) This technical-analysis view does not constitute a trade recommendation or trade setup. Instead, it attempts to offer technical commentary that describes and analyzes price levels, trends, price action, or the broader technical environment as of the publication date. Technical-analysis commentary does not equate to trade setups or recommendations. Within a given price environment, traders bear responsibility for their own trading strategy, risk tolerance, and time frame, and for any due diligence associated with such trades.
(3) This technical-analysis viewpoint could change at a moment's notice, e.g., when price violates a key level of invalidation for a particular view. Further, proper risk-management techniques are vital to trading success.
(4) To the extent countertrend price moves are discussed, consider that countertrend or mean-reversion trading, e.g., trading a rally in a bear market, remains higher risk and lower probability even for the most experienced traders and investors.
DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified / licensed financial adviser or other financial or investment professional before entering any trade, investment or other transaction.
Note
I don't focus on news that much. But lately, the inflation narrative and Fed policy are fairly important catalysts for markets. That doesn't mean the market's reaction will be predictable—remember this summer when Fed chair's presser was interpreted as dovish when it wasn't intended that way. There was just a lot of hope and expectation for a Fed pivot.In any event, FOMC minutes released today for the last FOMC meeting September 20-21, 2022, show nothing surprising given the Fed's comments at Jackson Hole in August 2022 and the Fed's presser in September 2022. The central theme remains true: The Fed is still committed to maintaining a restrictive policy stance / higher rates as long as necessary to bring inflation down to its target of 2%.
Fed is concerned about the impact that sticky inflation is having on low-income Americans. This means that the Fed is less concerned with the economy and equities than it is working to achieve price stability—without price stability, the rest will fall apart anyhow. So pleas to the Fed to reverse the higher-rate path will likely fall on deaf ears (e.g., Cathy Wood).
FOMC minutes show Fed sees 4.6% terminal rate. Maybe markets like this news for a few days (who knows) as it's not worse than the news was in September.
Note
One clarification: The FOMC minutes (according to news reports) state the following (quoting CNBC article): "However, officials also expressed optimism that policy would help loosen the labor market and bring down prices. Officials have said lately they don’t expect rates to stay high until inflation comes all the way down to 2%"This statement implies that the Fed won't be as aggressive right up until the date that inflation hits 2%. It may back off sooner if inflation is well on its way to reaching the target. That sounds reasonable perhaps, unless you remember the Fed repeatedly saying inflation was transitory last year, which doesn't exactly inspire confidence. But maybe this statement is a "bullish needle" in a haystack that sparks another little bounce?
The CPI number is really the most important data point this week.
Note
Note
A bear rally has been under way since the October 13 low. The key issue is how far can it push. Here are the support levels to watch this week for SPY:372.41—both a Fibonacci level and support from Friday, October 21.
367-370—TL from October 13 low (lower edge of parallel channel as well)
367-368—Fibonacci levels and VWAP off YTD low (367 as of last trading session)
The major resistance levels to watch this week are as follows:
375-378—Down TL from 8/16 high to present date, and this level changes each day as the TL slopes down, but over the next 2 days it's 375-378.
379-380—major Fibonacci cluster and near price highs from early October 2022
Note
In the update this weekend, SPY 372.41 was discussed as support. This morning, that support held and price moved back higher after moving lower a bit. Price never broke below 373 SPY. Price has now reached and surpassed the major resistance levels of 375, 378, and 379. Price has been struggling at 380. But with SPX up over 1.5%, price may close at or just above 380 today.
A close above puts the next higher target in play of 383 (8/16 VWAP) and 387 (key Fib level)
Note
SPY is right at the VWAP anchored to the mid-August peaks, which is currently at 382-383 (SPX 3830-3840)
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