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The SPDR S&P 500 (NYSE: SPY) opened down more than 1% Monday morning near a support level at $433.69 and bounced. Traders and investors are likely feeling wary about the Federal Reserve’s meeting on Sept. 21 and Sept. 22, which will be followed by Fed Chair Jerome Powell’s press conference at 2 p.m. Wednesday.
The concern is over whether the Federal Reserve will begin talk of tapering as the U.S. moves further toward the end of the COVID-19 pandemic. Sept. 3's job report missed consensus estimates which could stave off any talk of a reduction of Fed asset purchases.
The gap down open will provide range for scalpers and swing traders although support and resistance levels will need to be watched carefully. For now the SPY looks to be in a correction mode as opposed to a crash scenario.
The SPY has had three previous major pullbacks since the March 2020 COVID-19 crash: in September 2020, October 2020 and February 2021 where it declined 10%, 8% and 5%, respectively. The current pull back as of Monday sits at less than 5% from the all-time high of $454.05.
The SPY Chart: On Friday the SPY lost a lower trendline that had been propping it up from bearish retracements since March 4. Losing the level was a sign the SPY was likely to fall lower on Monday.
As of late Monday morning, the SPY was looking to print a doji candlestick on the daily chart, which could indicate a trend reversal back to the upside if the SPY closes the trading day near its opening price. There may be some indecision in the market until Wednesday after Powell’s press conference and conservative traders may want to hold off on positions to avoid market choppiness.
The downturn caused SPY to drop firmly below the eight-day and 21-day exponential moving averages and for the eight-day EMA to cross below the 21-day, both of which are bearish indicators. The SPY is trading well above the 200-day simple moving average, which indicates overall sentiment in the ETF remains bullish.
Bulls want to see consolidation and then for a market positive fed announcement to bring in big bullish volume to drive the SPY back upwards. There is resistance above near the $437, $441 and $447 levels.
Bears want to see big bearish volume come in and drop the SPY down below support at $433. Below the level there is further support at $425.
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