- SPY finished the week in negative territory but only just.
- The S&P 500 ETF witnessed wild swings but closed less than 1% lower last week.
- Sentiment readings are showing huge fear but bulls are taking of this being a buy signal.
The SPY finished Friday lower after an early attempt to rally was knocked back. The US employment report was about as good as hoped for by equity bulls. The wages component rose less than expected while job creation remains strong. The economy and labor market according to the Fed are red hot and can handle multiple rate rises. This employment report appeared to confirm that.
Equity futures rallied on the report, the US dollar weakened and bond yields fell. However, this attempt at a rally proved shorty lived and the equity market was looking at more steep losses before a small recovery toward the close on Friday.
SPY stock news: Companies pass price hikes to consumers
After the volatility caused by the Fed interest rate decision, the Bank of England, and Friday’s jobs report, one might hope for some stability this week. Earnings season is now past and it has largely been a strong one, despite feeling otherwise. Over 70% of S&P 500 companies have beaten analyst’s estimates and we are more or less through earnings season.
This week we will renew our focus on inflation when US CPI is released on Wednesday. This will once again let yields dictate equity market performance. While earnings season has been positive it has largely been down to companies passing on price hikes to consumers. This means inflation may last longer than forecast. It also means however that demand will begin to taper off so the consumer will be the recession gauge.
Sentiment gauges are massively skewed to fear. The CNN Fear and Greed Index is close to peak fear while the AAII survey was one of the lowest in years. The AAII did bounce a bit in the survey on Friday so perhaps it is time to start thinking about that dip.
SPY stock forecast: Wait a bit more before buying the dip
We too are tempted by this dip as earnings season has held up, but from purely gut instinct think it may be necessary for the market to inflict some more pain on participants just yet. After all the market runs at about 80% of participants losing money so it exists to frustrate most of us (Deemer’s Law!). We have been noticing over the weekend many blogs and commentaries saying it is time to buy this dip but if we all buy it then it is likely we will see further frustration. We made our sub $400 call for SPY last week and we will stick by it.
Notice also the volume gap just below $400 until $390. This is reflected in the futures markets also and in general, liquidity has been poor across many asset classes. A sharp move below $400 should accelerate to $390. This would then results in peak fear, and perhaps that is the dip to wait for.
RSI and MFI remain negative and the market breadth is also still weak. Last Thursday was a 90% down day, as in 90% of total NYSE stocks closed lower. This is a capitulation sign but we have no cause for a rally just yet.
SPY chart, daily