SP 500 ETF- SPY Technical Analysis (6-27)

SP 500 ETF- SPY Technical Analysis

The S&P 500 ETF ,” that uses the symbol “SPY,” has been influenced by the stock market this week. Its stock price stands at $107.86 As we learn in MSN Money Snaphot they write this about the Fund: “The investment seeks to correspond generally to the price and yield performance, before fees and expenses, of the S&P 500 Index. SPDR Trust is an exchange-traded fund that holds all of the S&P 500 Index stocks. It is comprised of undivided ownership interests called SPDRs. The fund issues and redeems SPDRs only in multiples of 50,000 SPDRs in exchange for S&P 500 Index stocks and cash.”

 
If you haven’t read it somewhere already (I would really be surprised) here is your head & shoulders pattern that seems to be forming. Well really has already formed quite well. We wrote about this last week and we have a complete formation this week. Now, we are waiting for a break down to confirm its possible nature.

The head and shoulders pattern consists of three distinct peaks. This pattern cannot be reliably identified until the right shoulder, or third peak, has formed or been confirmed. Unfortunately, by this time the market has already declined. However the pattern is very useful for setting targets for the coming market fall. Knowing these points helps traders to plan when to re-enter the market.

This pattern confirms a high probability that the previous long uptrend has ended, and, more importantly, it sets targets below the current price for the following downtrend. These targets are set by plotting a ‘neckline’ and then measuring the distance between the neckline and the top of the head.  The neckline joins the base of the left shoulder with the base of the right shoulder. It may slope up, down, or
horizontally. The slope does not have any particular significance. The neckline provides a measurement point.

If and when we break through the neckline Volume will be important as a confirmation. “In technical analysis and chart-pattern analysis, volume plays an important role as it is used as a secondary indicator. Volume indicates activity and money movement. When volume is high, there is a lot of activity and money changing hands – making it an important indicator to follow. For the head-and-shoulders pattern, volume is used mainly at the point of breakout to help confirm the pattern. At this point, it’s important that the breakout happens on a large-volume move. For a head-and-shoulders top, when the price breaks below the neckline (in a downward direction), it’s best when this occurs during a large volume increase, which signals heavy selling. This strongly indicates that the underlying supply and demand in the market is moving in the same direction the chart pattern is predicting.” (Investopedia)

We have a 17 point swing if and when the breakdown occurs. The next support level is at 95.10 but we may go even farther then that on our break out. We could see ourselves hover down to the 88 mark.