SPDR S&P 500 ETF Trust (SPY) Stock News and Forecast: Why the SPY will rally on Wednesday?

Tuesday turned out to be worse than forecast and certainly worse than the way the futures markets were pointing to at the open. European markets had certainly given some clues on Tuesday morning that it was going to be a tough US session but the Nasdaq, especially, took things badly as that one closed down nearly 3%. It was definitely a risk off day as we can see from high-risk asset performances.

Meme stocks suffered much steeper falls than mainline stocks and the crypto names, in particular, were heavily hit. 

Tuesday morning we made a bearish put spread call which nearly trebled, so some of you may have taken profits or partially closed some of the position. Every trade is based on your own needs and preferences just please manage your risk accordingly. We would likely have taken a decent bit off the table and let a small bit ride to see if the SPY goes lower. 

The catalysts have been circling for the last few days, with Evergrande seeming the favorite but out of left field treasury yields decided to pop and that was not what tech stocks wanted to see. It would appear the bond market took its time to digest the Fed taper talk from last week, but when it did make up its mind, it did so decisively. The VIX then jumped as a result and added to investor unease.

SPY stock forecast

We can take some credit here as we called this one earlier than most. The trend this year has been to buy dips, any dips but we have been cautioning that this time it was different. The market breadth indicators had deteriorated. These for example are the number of stocks making 52-week highs and the number of stocks trading above their 200 day moving averages, among others (advancers/decliners etc). The SPY had also broken out of the long-term uptrend channel in place since October 2020, with each dip being held by the lower trendline. Once this dip broke out of that, it was a sign things were different this time around but the more important fact was the dip broke the previous dips (August 19) low. A lower low and lower high is a classic downtrend, and this is now what we are working with here in the SPY.

So far the 100-day moving average has been holding the SPY pretty well and Tuesday again validated this. The 100-day support sits at $433 today. We expect to see a bounce today with a retracement back to the 9-day moving average at $440 the likeliest outcome and would then use this to go short. Always use stops, please. Breaking $445 will likely be our stop level and put the SPY back into neutral. Volume is light from $430 to $420, but our dip buy zone is at $415, safer with huge volume profile bar to support the level and the yearly Volume Weighted Average Price (VWAP) and 200-day moving average converging nicely as $415.

SPY daily chart