Crucial SPY Chart Levels to Watch as VIX Ratchets Higher

Don't sleep on the SPY 160-day, which has caught some key pullbacks in 2019

by Bernie Schaeffer

Published on Aug 27, 2019 at 6:29 AM
Updated on Aug 27, 2019 at 6:29 AM

With the stock market stakes steadily rising in recent weeks on seemingly every front -- from the dreaded yield curve inversions that have dogged traders in August to Friday's fresh escalations in the U.S.-China trade war -- the Cboe Volatility Index (VIX) appears to be gradually awakening from its slumber. The "fear gauge" has now closed two consecutive weeks above the 18 level, which carries dual technical significance as the site of VIX's 50% gain from its April closing low, as well as the "half-high" of its Feb. 2018 daily closing peak.

Given the backdrop of heightened fundamental anxiety, it's no surprise to find that volatility expectations are on the upswing. But while some new hurdles have emerged for equities amid the recent turmoil, there are still formidable support levels in place for the widely followed SPDR S&P 500 ETF Trust (NYSEARCA:SPY), which short-term traders should keep on their screens in the days and weeks ahead.

First up -- after a photo-finish close just above this trendline on Friday, Aug. 2, which immediately preceded a bear gap beneath it the following Monday -- the 50-day moving average for SPY has emerged as an overhead barrier. SPY has closed 14 of the last 15 sessions beneath this closely watched short-term trendline, and at least three intraday highs over that stretch have occurred at the site of the 50-day. At Friday's close, this moving average was located at $294.27.

Another essential trendline to keep on your radar is the SPY 160-day moving average, which we've found has frequently stepped up to contain pullbacks that didn't quite carry the S&P tracker all the way down to its more widely followed 200-day. Per the accompanying chart, the SPY 160-day previously caught lows in February, March, and June before rising to the occasion once again on Aug. 15. The 160-day enters the week at $284.17, fractionally below SPY's Friday close.

Just a couple points north of the 160-day lies the $286.04 level, which represents a 23.6% Fibonacci retracement of SPY's rally from its Dec. 24 closing low to its July 26 closing high (which occurred at $302.01, a few notches above the fund's round 20% year-to-date return at $299.90). This Fibonacci price point came under siege during Friday's wild trading, and briefly looked like it would hold up as support -- but SPY eventually closed the day and week narrowly below this psychologically significant percentage return.

As for short-term options traders, deep out-of-the-money SPY puts remain the order of the day. Peak open interest for the weekly 8/30 options series can be found at the 270 put strike, with 64,600 contracts outstanding. Closer at hand, in relation to SPY's Friday close, is the weekly 8/30 280-strike put, with a formidable 50,000 contracts in residence. Looking back, SPY hasn't closed a session below $280 since June 3, and it hasn't settled south of that heavily populated 270 strike -- an all-important support level during the early days of February -- since Jan. 31.

Finally, one more number to watch -- SPY just logged its 4th weekly decline in a row, matching its previous weekly losing streaks from May 2019 and October 2014. Following this lengthy string of week-over-week declines, the broad-market gauge could well be due for a recovery bounce during the week ahead.

spy dail chart 0823


Subscribers to Bernie Schaeffer's Chart of the Week received this commentary on Sunday, August 25.


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