Welcome friends, to this update analysis on the SPY! We're going to step away from crypto, and check out the ETF that tracks the S&P 500 , to size up the current situation in the stock market. If you're wondering why, well, Magic doesn't only trade crypto, and the recent action in the stock market could create a cascading effect into all markets, including crypto. So, without further ado, lets jump right in!
Looking at the daily chart for the SPY , we can see that the market has been in a tremendous uptrend channel , since early 2016. However, we recently touched the top of the channel, and the dropped straight to the bottom, in a relatively short period of time. This extreme volatility is very concerning, and it's often indicative of topping action. We can see that the SPY tried to recover, but reversed just above the midline of the channel. This price movement may have created a new downtrend channel (in pink.) However, since the primary uptrend channel hasn't been broken, it isn't wise to short just yet. Ideally, I would like to see a failure to get above the 50 EMA (in orange) before jumping on the bear train. Assuming that this new downtrend channel is legit, we can use the top of it as a gauge of upside risk. What I mean, is that any breakouts above this new downtrend channel , would most likely put my bearishness on ice. You can see that the 50 EMA has been held on multiple occasions (green arrows) and now, the SPYders are all over it. A shift appears to be occurring. Looking at the MACD , you can see that there appears to have been a failure to get back above the zero line, which is a technical sell signal.
You can see that the 200 EMA is converging with the bottom of the channel, as it nearly disappears into the trendline . This convergence is strengthening the bottom of the channel as support, but if it is broken, the bears will take out two major levels in one fell swoop. With that said, a breakdown from there would most likely be rapid and violent. My first breakdown short target is on the 382, at about 245.
So, what does this mean for crypto? Well, I find it interesting that the stock market is exhibiting some topping action, just after BTC and others in the crypto space have bottomed. Perhaps, if the stock market breaks down, investors will look for alternative investment vehicles, such as cryptocurrencies. I think evidence of that already exists, in the bottoming/topping action of crypto/stocks. Time will tell. For now, lets watch the 50 EMA , the pink downtrend channel , and the bottom of the uptrend channel , of course.