The S&P 500 SPDR (SPY) is a period of big swings and above average volatility. There were six swings of at least 10% from late January to early February 2023. Looking at other 12-14 month periods, this is the fourth most in the last 23 years. There were 13 in 2008, 8 in 2000 and 6 in 2011. 2008 marked the Global Financial Crisis, while 2000-2001 marked a bear market. 2011 was a chaotic period when the European Sovereign Debt crisis rocked the markets. Note that I am not using exact calendar years. I added a month or two of padding to show the general idea.
The chart below shows the swings from January 2022 to February 2023. Most recently, there was a 10% upswing from mid October to mid December and then an 8.8% downswing. This decline does not count as a 10% swing so the Zigzag did not draw a line down. This means the October to February swing is one big “zag” higher.
So what does this mean? It means that volatility is above average, which increases the chances of a reversal and another big swing. SPY broke above its December high and has an uptrend working since October (higher low and higher high). Volatility remains a concern going forward and a short-term reversal at this point could lead to another sizable downswing. Friday’s report at TrendInvestor set the key levels to watch and two indicators for long-term signals. Short-term, SPY a falling flag is taking shape and a breakout at 415 would be bullish.
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Arthur Hill, CMT, is the Chief Technical Strategist at TrendInvestorPro.com. Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed market technician. Arthur has written articles for numerous financial publications including Barrons and Stocks & Commodities Magazine. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from the Cass Business School at City University in London.