Friday’s ETF Chart To Watch: SPDR S&P 500 (SPY)

by on November 4, 2011 | ETFs Mentioned:

Euphoria swept over Wall Street yesterday as good news from the Euro zone pushed stock markets higher. Prime Minister George Papandreou assured investors that his nation would remain in the currency bloc after he announced that Greece would not hold a referendum to the “bailout plan” proposed earlier last week in Brussels. A surprise interest rate cut by the European Central Bank also helped add to the excitement as investors were glad to see the ECB taking pre-emptive meassures to ensure stability in the financially fragile region. Gold soared higher alongside equities and futures prices for the precious yellow metal settled around $1,765 an ounce for the day.

The U.S. unemployment rate for the month of October is slated to come out tomorrow morning and analysts are largely expecting for the rate to remain unchanged at 9.1%. Investor confidence in the U.S. economy has improved considerably over the past month and our ETF to watch for the day is the ultra-popular SPDR S&P 500 (SPY), which may see some volatile trading as investors react to latest labor market data release [see New ETF Scorecards, In-Depth Analysis, And Rankings Of Every ETF] .

Chart Analysis

This S&P 500 ETF has gained close to 15% over the last month, although from a year-to-date perspective it remains flat, up less than half a percentage point [see ETFs To Smooth Volatility: Looking At Some Long/Short Options]. Since topping out at $137.18 a share on 5/2/2011, SPY has down as low as $107.43 a share, however, this ETF appears to ave established support around the $115 level. Notice how this ETF held its head above the $110 level, excluding the dip down to $107.43 a share, backed by relatively high-volume trading, suggesting that big buyers were stepping in around this level. One piece of evidence that challenges a bullish outlook is the fact that SPY failed to close above its 200-day moving average (yellow line) last week.

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SPY appears poised to move higher from a technical perspective considering that it has been establishing rising levels of support while the price action has been very bullish all month amidst all of the Euro zone debt drama, which still remains unresolved [see For ETF Investors, Currency Exposure Matters (More Than You Might Think)].

Outlook

If tomorrows employment report shows a surprising down-tick in unemployment, investors may find themselves in a bullish buying frenzy [see Beyond SPY: Nine Alternatives To S&P 500 ETFs]. In terms of upside, SPY can certainly climb back to $130 a share tomorrow if the news are great, in which case we advise short term trader to consider taking profits at this level since it’s an area of significant resistance. Likewise, if investors are spooked by a worse-than-expected employment report, SPY may face serious selling pressures, potentially sending it back below $125 a share and toward support at the $120 level. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit taking techniques.

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Disclosure: No positions at time of writing.