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

by on December 29, 2011 | ETFs Mentioned:

Traders sprang into risk-aversion mode as the Italian bond auction overseas rekindled worries and sparked a sell-off on Wall Street, ending the five day bull-run for domestic equity indexes. “A good test of the appetite for Italian debt will be tomorrow’s bond sales that have maturities past three years,” said Peter Boockvar, equity strategist at Miller Tabak. Weakness in the euro paved the way higher for the U.S. dollar, which created major headwinds for the precious yellow metal in the futures market as traders took profits left and right . Gold dipped below $1,560 an ounce while crude oil prices settled around $99.50 a barrel as the trading day drew to a close.

The final weekly jobless claims report for 2011 will take center stage later today as investors digest year-end economic data. The ultra-popular State Street SPDR S&P 500 ETF (SPY) is on our radar screen for the day as it may experience volatile trading following the U.S. employment data release. Analyst are expecting for 374,000 filings for unemployment benefits, versus the previous reading of 364,000.

Chart Analysis

Domestic equities, as represented by SPY, have done a nice job of establishing rising levels of support since bottoming out at $107.43 a share on 10/4/2011. SPY is currently at an attractive entry point for long-term investors with bullish prospects for the U.S. economy, however, certain technical indications may point to near-term weakness [see ETFs To Smooth Volatility]. Since the end of October 2011, SPY has tried, and failed, three times to hurdle over and stay above its 200-day moving average (yellow line); first on 10/27, followed by 11/8, and most recently on 12/5/2011 [see SPY Technicals].

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Yesterday SPY encounter relatively strong selling pressures right by its 200-day moving average once again, perhaps suggesting that it may be due for a correction, much like after its past three failed attempts mentioned above. Conservative investors are advised to wait until SPY established definitive support above its 200-day moving average for one or two consecutive weeks, depending on individual risk tolerance.


If investors react positively to the latest jobless claims report, bullish momentum ought to bolster U.S. equity indexes higher [see also Are Gold ETFs The Best Defense Against Euro Drama]. Likewise, SPY could spike higher to anywhere from $126 to $128 a share, although we would advise short-term traders to lock-in profits near the upper-half of the range, seeing as how there is considerable resistance at this level. On the other hand, if pessimism prevails after a worse-than-expected jobless report, SPY may continue to correct lower. In terms of downside, SPY could dip down to $122 a share, with the next level of support coming in 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.