S&P 500 ETF- SPY Weekly Analysis (7/4/2010)

SP 500 ETF SPY

The S&P 500 ETF ,” that uses the symbol “SPY,” has been influenced by the stock market this week. Its stock price stands at $102.02 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.”

Last week in our analysis we wrote about the head& shoulders formation. This week we had that break through that we wrote about. The strength and confirmation of this break through needed to be on higher volume and we also did get that. Now we are looking for the SPY to eventually move down 17 points possibly. From the 105 level we could see a move clear down to 88 or so. First strong support comes at 95.

The S&P 500 has a high percentage of stocks that are trading below their 50 day moving average, we are getting back to the same levels as the 2008 crash.

We wrote about and were also looking for one of two things to happen this week. Either the SPY was going to bounce off its strong support at 105 and move up into a tighter trading range, or it as going to move lower and increase its volatility. As you can see from the expanded Bollinger Bands, we have increased volatility. Now we have stronger downward momentum.

The culprit behind this two week trend is the news coming in. Just Friday, “a wave of census layoffs cut the payrolls in June for the first time this year, although private employers added a small number of jobs. The good news is that unemployment declined to 9.5%, the lowest level in a year. But don’t get excited: the drop is the result of discouraged job seekers giving up on their searches.” So market news continues to appear gloomy.

How to Trade the SPY

The increasing technical perspective is very gloomy and bearish and it is going to be hard to break that two month downward cycle.So we would trade bearishly for the next 60 days. Using 95 & 88 as a point of trading, we would suggest a bear call spread or a bear put spread for protection and a period of 60 days. We could get some bounces but we would play the head & shoulder.