How to Analyze the $SPY Daily Chart
Greetings fellow traders,
Welcome to this installment of our newsletter where we analyze price action on
SPY on the daily, hourly, and 15 minute timeframes. We will keep this one short and sweet.
DAILY TIMEFRAME
What is the Trend?
The short term trend is bullish: the 9-candle EMA is trading above the 20-candle EMA.
The medium term trend is bullish: the 20-candle EMA is trading above the 50-candle EMA.
The longer term trend is bullish: the 50-candle EMA is trading above the 200-candle EMA.
How Strong is the Current Trend?
One of the ways that traders can analyze the strength of a trend is by appeal to the Average Directional Index (ADX). Readings below 20 indicate a weak or non-existent trend. If the ADX is going up, readings between 20 and 40 indicate a developing early trend of low to moderate strength. Readings between 40 and 55 indicate a strong, well-established and robust trend. And finally readings above 55 indicate an extremely strong trend that is likely approaching exhaustion.
At the moment, the ADX is 25.04 on the daily chart, indicating a low strength trend that can, with additional momentum, pick up steam. But how likely is this? In order to answer that question, we are going to have to look at several other technical indicators, supply and demand levels, and chart patterns.
One of these technical indicators is the relationship between the 9-candle EMA and the 20-candle EMA. Despite the impressive upward move in price action yesterday, the distance between the 9-candle EMA and the 20-candle EMA remained constant from the day before. If the trend was strong, you would expect the distance between the two to be increasing. The fact that it did not is a potential warning sign that the trend is not extremely strong at the moment.
What do the Momentum Oscillators Tell Us?
Another thing to consider are the two main momentum oscillators: the Relative Strength Index (RSI) and the Stochastic Oscillator. These momentum oscillators can give us clues as to whether or not the current trend is reaching exhaustion, or if it is likely to continue.
Let’s first consider RSI. As of yesterday’s close, we have an RSI reading of 65.86 — a reading that is approaching the technical overbought level of 70. For reference, the last time thatSPY was trading at these levels was in August of 2022. During that incredible summer rally, the RSI pushed all the way up to 73.43 before the trend reached exhaustion and a powerful reversal ensued. Bearing that in mind, you should not necessarily be surprised if SPY were to push into that overbought territory this time around as well before reversing.
That being said, the Stochastic Oscillator is flashing a reading of 97.52, which is incredibly close to the maximum overbought reading of 100. This is a major indication for technical analysts that we may soon see a mean reversion in price action so that this all-important momentum oscillator can “cool off” for a bit.
Indeed, it has been 6 days sinceSPY last made contact with its 9-candle EMA, suggesting that we are potentially due for a basic reversion to the mean in price action. If we were to first push higher, though, there are a few levels on SPY to keep in mind.
How High can the Market Push?
The first is the upper Bollinger Band, which closed yesterday at 430.97. While that value will shift higher today, this upper band is a level to keep in mind as potential resistance should the market catch an end-of-the-week bid.
The second level is the high from August 2022: 431.73. Both of these levels are within reach if bulls want them.
Finally, if things get really crazy, keep your eyes on 435.34.
Are there Signs of Bearish Divergence?
Notwithstanding the potential for one final push to enter the overbought territory on RSI, it is very important to note that on Monday of this week we received a technical bearish divergence signal in price action.
Even though the market made a higher high than at any point in the previous 30 trading days, we did not get a higher high in:
The reading on the Relative Strength Index
The reading on the Stochastic Oscillator
The reading on MACD
When these indicators fail to make higher highs while price is making higher highs, this is an incredibly strong sign of bearish divergence. Should the market push into close, positioning for a mean reversion pullback during power hour should certainly be on watch.
What are the Mean Reversion Price Targets?
However high price ultimately pushes before reversal, it would be prudent to keep the following potential pullback levels in mind if you are trying to play a mean-reversion trade.
The first target would be the 9-candle EMA. While it is currently trading at 424.54, this value will change with each passing day. You can use this, or potentially the 14-candle EMA, as your first “profit-taking target” for a mean reversion trading strategy. Do keep in mind, though, that there is currently some solid demand between 426.14 and 425.82 that we will have to break through in order to gain some selling momentum.
The second target, should the first be broken, would be 422.58, a previous resistance level.
The third “stretch” target would be around 420.73. Anything below 420 would likely see 418.31.
What are the Main Supply and Demand Levels to Add to our Charts?
Finally, make sure to track the recent supply and demand levels on the daily timeframe:
429.62
420.72
417.62
415.72
411.92
Stay tuned for the follow-up video where we zoom in on the hourly chart for more specific short-term guidance.
Welcome to this installment of our newsletter where we analyze price action on
SPY on the daily, hourly, and 15 minute timeframes. We will keep this one short and sweet.DAILY TIMEFRAME
What is the Trend?
The short term trend is bullish: the 9-candle EMA is trading above the 20-candle EMA.
The medium term trend is bullish: the 20-candle EMA is trading above the 50-candle EMA.
The longer term trend is bullish: the 50-candle EMA is trading above the 200-candle EMA.
How Strong is the Current Trend?
One of the ways that traders can analyze the strength of a trend is by appeal to the Average Directional Index (ADX). Readings below 20 indicate a weak or non-existent trend. If the ADX is going up, readings between 20 and 40 indicate a developing early trend of low to moderate strength. Readings between 40 and 55 indicate a strong, well-established and robust trend. And finally readings above 55 indicate an extremely strong trend that is likely approaching exhaustion.
At the moment, the ADX is 25.04 on the daily chart, indicating a low strength trend that can, with additional momentum, pick up steam. But how likely is this? In order to answer that question, we are going to have to look at several other technical indicators, supply and demand levels, and chart patterns.
One of these technical indicators is the relationship between the 9-candle EMA and the 20-candle EMA. Despite the impressive upward move in price action yesterday, the distance between the 9-candle EMA and the 20-candle EMA remained constant from the day before. If the trend was strong, you would expect the distance between the two to be increasing. The fact that it did not is a potential warning sign that the trend is not extremely strong at the moment.
What do the Momentum Oscillators Tell Us?
Another thing to consider are the two main momentum oscillators: the Relative Strength Index (RSI) and the Stochastic Oscillator. These momentum oscillators can give us clues as to whether or not the current trend is reaching exhaustion, or if it is likely to continue.
Let’s first consider RSI. As of yesterday’s close, we have an RSI reading of 65.86 — a reading that is approaching the technical overbought level of 70. For reference, the last time that
SPY was trading at these levels was in August of 2022. During that incredible summer rally, the RSI pushed all the way up to 73.43 before the trend reached exhaustion and a powerful reversal ensued. Bearing that in mind, you should not necessarily be surprised if SPY were to push into that overbought territory this time around as well before reversing.That being said, the Stochastic Oscillator is flashing a reading of 97.52, which is incredibly close to the maximum overbought reading of 100. This is a major indication for technical analysts that we may soon see a mean reversion in price action so that this all-important momentum oscillator can “cool off” for a bit.
Indeed, it has been 6 days since
SPY last made contact with its 9-candle EMA, suggesting that we are potentially due for a basic reversion to the mean in price action. If we were to first push higher, though, there are a few levels on SPY to keep in mind.How High can the Market Push?
The first is the upper Bollinger Band, which closed yesterday at 430.97. While that value will shift higher today, this upper band is a level to keep in mind as potential resistance should the market catch an end-of-the-week bid.
The second level is the high from August 2022: 431.73. Both of these levels are within reach if bulls want them.
Finally, if things get really crazy, keep your eyes on 435.34.
Are there Signs of Bearish Divergence?
Notwithstanding the potential for one final push to enter the overbought territory on RSI, it is very important to note that on Monday of this week we received a technical bearish divergence signal in price action.
Even though the market made a higher high than at any point in the previous 30 trading days, we did not get a higher high in:
The reading on the Relative Strength Index
The reading on the Stochastic Oscillator
The reading on MACD
When these indicators fail to make higher highs while price is making higher highs, this is an incredibly strong sign of bearish divergence. Should the market push into close, positioning for a mean reversion pullback during power hour should certainly be on watch.
What are the Mean Reversion Price Targets?
However high price ultimately pushes before reversal, it would be prudent to keep the following potential pullback levels in mind if you are trying to play a mean-reversion trade.
The first target would be the 9-candle EMA. While it is currently trading at 424.54, this value will change with each passing day. You can use this, or potentially the 14-candle EMA, as your first “profit-taking target” for a mean reversion trading strategy. Do keep in mind, though, that there is currently some solid demand between 426.14 and 425.82 that we will have to break through in order to gain some selling momentum.
The second target, should the first be broken, would be 422.58, a previous resistance level.
The third “stretch” target would be around 420.73. Anything below 420 would likely see 418.31.
What are the Main Supply and Demand Levels to Add to our Charts?
Finally, make sure to track the recent supply and demand levels on the daily timeframe:
429.62
420.72
417.62
415.72
411.92
Stay tuned for the follow-up video where we zoom in on the hourly chart for more specific short-term guidance.
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