Investing 03-03-2023 07:08 7 Views

SPY ETF stock price closes at its do-or-die point: technical analysis

The SPDR S&P 500 (SPY ETF) stock has been under pressure amid rising concerns about the market and as the fear and greed index retreats. The closely-watched ETF was trading at $397.81, which was a few points above this week’s low of $392.12.

Bond yields concerns

The SPY ETF bounced of above an important support level on Thursday despite the rising risks in the market. Analysts cite three main risks that could have an impact on the ETF, which tracks the S&P 500 (SPX) index. 

First, there is the lingering risk of the bond market. The ten-year government yield jumped to 4% this week for the first time since October. At the same time, the shorter-term yields have risen above 5% while mortgage rates jumped above 7%.

Therefore, there are two main implications for this performance. First, the performance of the bond market is signaling that a recession could happen in the coming months. In most periods, a recession has always come after the yield curve is inverted.

Second, it means that we could see a rotation from stocks to cash. Besides, investors can simply make a 5% return risk-free by just staying in cash. Yields will keep rising if the Fed maintains its hawkish tone this year. In a note, Fed’s Christopher Waller said:

“I would be very pleased if the data we receive on inflation and the labor market this month show signs of moderation. But wishful thinking is not a substitute for hard evidence in the form of economic data. After seeing promising signs of progress, we cannot risk a revival of inflation.”

Further, the other risk for the SPY ETF is corporate earnings. Recent results by retailers showed that consumers are slowing their spending. Also, the average quarterly earnings growth decelerated in the fourth quarter. And many companies expect to have slower growth going forward. 

SPY ETF forecast

SPY chart by TradingView

The SPY stock price chart is sending mixed signals. On the daily chart, we see that the SPY fund has formed converging trendlines. And this convergence is nearing its meeting point. It has also moved slightly below the key resistance level at $408, the highest level on December 13. The ETF is stuck below the 25-day and 50-day moving averages.

Therefore, the SPDR SPY ETF outlook is indeed neutral with a bearish bias for now. More downside will be confirmed if it moves below the key support level at $390. A move above the resistance point at $408 will signal that there are buyers in the market.

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