- SPY falls for a fourth consecutive day on Wednesday.
- SPY is now down over 8% from August highs.
- Futures pointing to more losses for Thursday.
The equity market remains in defensive mode as Wednesday saw yet more losses, and now the drive for five is up and running with a negative open likely on Thursday. This recent move has been relatively sharp with most indices now down 8% or more from August highs. Most of the damage was done last Friday, and with today being the first day of the month it looks like another negative one.
SPY news
The big headwind for equities is the continued rise in bond yields. This continued on Wednesday, and again this morning yields are higher across the curve. The yield curve has steepened somewhat, but overall yields remain higher and remain a problem for equities.
September is historically not the greatest for stock market performance, so we see no reason for that trend to change any time soon. The only grain of hope is Friday's employment report. A hot report and likely we see more gains in bond yields and further falls for equities. A poor report confirms this recession might be long and deep, so really the best hope for equities at least is a small miss on the lower side of forecasts.
This is a narrow window then for equities to rally. Add in the supposed upscaling of QT this month, and it looks increasingly challenging for stocks. The only potential signs that could see this bearishness abate are Bitcoin still holding above $20,000 and falling oil prices. One is indicative of risk sentiment, and the other is predictive of lower inflation ahead. So there are some positives, but the sentiment looks too bearish for now.
SPY forecast
A quick look at where we are. I have been testing the linear regression tool for the last few weeks across different assets and stocks. It does have some useful qualities in showing overbought/oversold conditions or where things have gotten too stretched. Again here it showed the SPY getting overbought in August, which was confirmed by the RSI and failure at the 200-day moving average. Now we are back in neutral, but the trend remains bearish. Support at $395 is holding. A break, and it is back to $371 as the key test. For this long-term bearish trend to persist so far in 2022, we will need to make a new low in this wave breaking $362.
SPY daily chart
Intraday traders look for $396 to $398 as the pivot.
SPY 15-minute chart
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