SPDR S&P 500 ETF Trust (SPY) Forecast: Rally still on, but nervousness remains high

The stock market continues to try and work out its direction as the wild swings in equity markets continue. Last week we saw a massive rally on Thursday based on some record-high CPI. Counter intuitive, but Friday corrected the move, and we ended up back where we started after two tumultuous days. Well, not actually back where we started. The market is still higher than where it began Thursday, so perhaps progress of sorts.

SPY news

Earnings season is not as bad as feared so far. The banks were decent, Pepsi (PEP) and Domino's (DPZ) showed consumers will keep spending on lower-cost items. Next up are Tesla and Netflix this week among others. The seasonality effect is still strong for the back half of October with mid-terms fast approaching. There remains the possibility that the bad news is largely priced in for now. Let's check it out.

Earnings season expectations are low, and so far the numbers look better than expected. Mid-terms historically are good for bulls, and then we are into the Santa rally season. The Fed is still hiking, but with bond yields moving so sharply, we may already have priced this in as well. Equity positioning and sentiment are overly bearish in my view. Probably corrects in the long term, but that could lead to some short-term rallies in SPY and other stock market indexes' ETFs. 

SPY forecast

The Fibonacci support and pre-pandemic high zone around $351 to $352 has held again. This is now key to my SPY stock rally thesis. Hold here and then retake the pivot at $373, and this rally should extend to $389. It may even push higher if we get a midterm rally and move into December then. Year-end scrambling will likely see a further squeeze for S&P 500 in my view, but it is really all about support holding. 

SPY daily chart