The SPDR S&P 500 (NYSE:SPY) gapped down Thursday but was surging into the close in a sharp move caused by the bulls attempting to gain control for a rally within the overall bear market.
Apple, Inc (NASDAQ:AAPL) was trading about 2.7% higher and Microsoft Corp (NASDAQ:MSFT) was bouncing over 4%.
Amazon.com, Inc (NASDAQ:AMZN), however, with the third largest weighting in the S&P 500, was showing relative weakness, unable to trade above Wednesday's high-of-day.
Amazon’s comparative weakness to Apple and Microsoft may spook some bullish traders, who would prefer to see all the top stocks in the S&P 500 moving in tandem for more certainty that a bigger bounce is on the horizon.
On Thursday morning, the Labor Department reported an 8.2% year-over-year increase in the consumer price index for September, despite the Federal Reserve enacting a series of large interest rate hikes over the last nine months in an attempt to hamper inflation.
The news caused a number of analysts to predict the Fed will hike interest rates by a large amount again next month, making it more likely a recession could be in the cards.
Fears of a recession paired with soaring inflation and rising interest rates causes consumers to spend less, which negatively affects the stock market, especially tech stocks.
Within every bear market there are bullish cycles, and Thursday’s price action could be a one-day relief bounce or the beginning of a longer-term bull cycle. For now, the overall trend is down but traders and investors will be watching for signs the temporary top is in over the next few days.
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The SPY Chart: The SPY reversed course into a downtrend on Aug. 16 and has been making a consistent series of lower highs and lower lows on the daily chart. The ETF’s most recent lower high was formed on Oct. 5 and $379.46 and the most recent lower low was printed at the $348.11 mark on Thursday.
- On Thursday, the SPY was working to print a bullish engulfing candlestick, which could indicate higher prices will come on Friday. If that happens, bearish traders will want to see the ETF print a bearish reversal candlestick, such as a doji or shooting star candlestick, under the most recent lower high, which could indicate the top is in and the downtrend will continue.
- Bullish traders want to see the SPY rise up to print a higher high above $380, or for the ETF to consolidate lower on lower-than-average volume over the next few days to print a higher low. If either of those two things happens, the downtrend will be negated and a larger bull cycle could be on the horizon.
- The SPY has resistance above at $371.48 and $380.61 and support below at $363.26 and $357.50.
- If Amazon closes the trading day near its high-of-day price, the stock will print a hammer candlestick, which could indicate higher prices will come on Friday. The next most likely scenario is that Amazon will print an inside bar on Friday to consolidate.
- Amazon has gaps above on its chart, with the closest gap falling between $118.17 and $119.50. If Amazon trades higher over the next few trading days, bearish traders can watch for the stock to potentially print a bearish reversal candlestick near the top of that gap.
- Amazon has resistance above at $117.16 and $122.24 and support below at $109.30 and $102.52.
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