The SPDR S&P 500 ETF Trust (SPY) pulled back slightly at the beginning of Tuesday’s trading session before rebounding to reject Monday’s closing price as resistance.
This comes as the government is trying to avert an impending crisis concerning debt ceiling talks, which could arrive as soon as June 1 as investors keep a close eye on the situation.
As indicated by lower-than-average trading volumes over the last couple of days, the market ETF saw a decline in volume, accompanied by a small dip in prices, which formed a possible bull flag pattern on the daily chart – suggesting a period of consolidation.
A bull flag pattern is formed when a sharp increase forms the pole, followed by a consolidation pattern that brings the stock down, forming a channel between parallel lines or a tightening triangle.
If any negative news arises concerning the debt ceiling talks in the next few days and support for the eight-day exponential moving average is lost, then the bull flag could be nullified, with the possibility of increased volatility.
For traders wishing to take advantage of this, MIAX’s SPIKES Volatility products, which track anticipated volatility in the SPY over the next 30 days, can be utilized.
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The SPY Chart: As the SPY dropped on low trading volumes, this is a good sign for bullish traders, indicating consolidation rather than fear-selling. If the ETF remains above the eight-day EMA, the pattern should remain in place, and traders keep watch for the SPY to break the flag on higher-than-average trading volume.
- If the SPY closes near its day’s low price yet above the eight-day EMA, an inverted hammer candlestick will form, suggesting a potential rise in the ETF on Wednesday. If intense selling pressure drops the SPY below the $415 mark, then lower prices may become inevitable.
- Should this occur, the bull flag will be dissolved; however, the SPY’s uptrend could stay intact. Bullish traders would hope for the ETF to generate a bullish reversal candlestick above the most recent higher low of $410.24, printed on May 16. The most desirable candlesticks in this scenario could be either the doji or hammer candlestick.
- Should the SPY break free of the bull flag pattern, a measured move of about 2.5% indicates a possible stab toward $426.
- Resistance at $420.76 and $426.56 and support at $414.89 and $408, respectively, are levels to watch.
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