SPDR S&P 500 ETF Trust (SPY) Forecast: Rally set to continue with some speed bumps from oil

• S&P 500 continues to recover from recent losses.
• SPY stages big intraday turnaround to close nearly flat on Wednesday.
• Headwinds from oil and yields are overlooked.

A massive relief rally was consolidated on Wednesday despite some initial negativity. That negativity had seen equities open lower and move swiftly to trade as much as 2% lower before an afternoon rally saw equities close little changed for the day. This was despite some notable headwinds with oil prices again moving higher and adding to inflation fears. OPEC+ decided to cut production by 2 million barrels of oil per day, slightly higher than forecast. Oil prices edged up steadily this week and have stayed near weekly highs at $87. This has underpinned bonds with the 2-year yield moving higher and the 10-year yield edging back closer to 3.8%. 

S&P 500 (SPY) news

The Biden administration, it appears, is none too happy with this latest OPEC+ production cut and may be about to announce a likely easing of sanctions on Venezuela, so Chevron (CVX) can pump some oil from the region, according to an article in The Wall Street Journal. Chevron stock is up 11% in just over a week but reacted mutely to this latest development. Although the White House National Security Council Spokesperson Adrienne Watson said on "Our sanctions policy on Venezuela remains unchanged. We will continue to implement and enforce our Venezuela sanctions," according to Reuters and that policy would not change without steps from the Venezulan President. So all a bit up in the air then!

The US also said it will release yet more oil from its strategic reserves. Finally, we also got talk that the NOPEC deal could be back on the table. This is a bill that already passed the Senate committee, which could expose OPEC members to lawsuits if found to have deployed supply cuts to raise oil prices. This has helped to cap oil prices just as OPEC+ looks to put a floor on them. All this geopolitical arguing would usually not be such positive news for risk assets, but the market largely overlooked it with the afternoon rally. Talk of a Fed pivot is still ringing in investors' ears from the RBA opting for a slower rate hike and Fed member Brainard saying that they will have to keep an eye on financial stability.

We also cannot rule out just plain positioning and sentiment. Both were terrible last week with the CNN Fear and Greed Index in extreme fear and bearish talk everywhere. That is usually a good reversal signal, and so it proved. Earnings season is up shortly, and investors are also squaring up in trying to assess just how much bad news is already in the price. So far we have had major sell-offs in Nike (NKE) and FedEx (FDX), which dragged their respective sectors lower. Has the bar been set low for the next earnings season then? 

SPY stock forecast

What a beautiful bounce from the 200-week moving average. We mentioned this potential in our weekly preview article, see here Week Ahead on Wall Street: Poor sentiment leads to new lows, but is October set up for a bear market rally?.

It has provided an incredible bounce. Now we enter the consolidation phase. This is key to building a more sustainable rally. With this in mind, the SPY really needs to hold above $368-370 in my opinion. That can be a base building consolidation for a test to $388. 

SPY daily chart