Sign InSPY ETF Shows Potential for Bounce Back Despite Near-Term Bearish Trend
Summary
Summary (as of August 4, 2021): The SPDR S&P 500 ETF Trust (SPY), backed by a significant market cap, has a high PE ratio and is trading below its moving averages, reflecting a bearish trend, but its oversold condition indicated by the low RSI14 suggests a potential for a slight gain in the next trading day, although the bearish MACD reading and failure to hold its support level could lead to further selling pressure, making it a 'Hold' for now.
Fundamental Analysis
The SPDR S&P 500 ETF Trust, ticker symbol SPY, is one of the largest and most liquid ETFs on the market, which is backed by a significant market cap of $400.42 billion. Looking into the basics of its valuation, SPY's EPS (Earnings Per Share) is at 19.85, and it is trading with a PE (Price to Earnings) ratio of 21.98, which supports the widely accepted perception that the broader market valuation is somewhat elevated compared to historical averages.
Further, recent news about fund flows into exchange-traded equity funds indicates that investors still have confidence in equities, with SPY likely a direct beneficiary of some of these funds due to its ubiquity in the financial markets. Nevertheless, signs of outflows from taxable fixed income funds might suggest that investors are repositioning in anticipation of changes in the yield environment, potentially hinting at a steeper yield curve in the future.
Technical Analysis
On a technical perspective, SPY's last trading price was $436.29, reflecting a -0.76% change and landing near the day's low of $435.75. The ETF is currently trading below both the 50-day moving average (MA) of $443.78 and just slightly above its support level of $433.21. The ETF's recent performance has seen a decline from its year high of $459.44.
The 200-day MA of $411.51 signals an overall uptrend for SPY despite recent pullbacks. Nevertheless, the Relative Strength Index (RSI14) at a value of 21 signals an oversold market condition for the SPY, which could indicate an upcoming price recovery given the tendency for the market to self-correct over time. However, the 3-month Moving Average Convergence Divergence (MACD) of 0.24 further suggests a near-term bearish trend.
Prediction for Next Trading Day and Upcoming Week
Using the provided indicators and the current momentum, SPY could experience a slight gain in the next trading day due to the oversold market conditions signaled by the low RSI14. Furthermore, its share price might combat against the resistance level of $437.18. However, the bearish sentiment reflected in the MACD suggests this might be a weaker upside move.
For the upcoming week, if the SPY manages to break the resistance level, investors could see a positive shift of the ETF towards recalibrating to the 50-day MA. On the flip side, if the ETF fails to hold its support level, further price decline towards the 200-day MA could potentially occur.
Final Evaluation and Recommendation
Taken as a whole, given the current technical indicators alongside an overall sturdy fundamental background, SPY exhibits potential for bouncing back from its current oversold condition. The lower RSI14 value presents an attractive contrarian investment opportunity, especially if upcoming economic data and news lean favourably.
However, recognizing the near-term bearish MACD reading, investors might want to carefully monitor the support level for the next several trading sessions. Any solid break below that level would negate the oversold bounce play and could lead to further selling pressure.
Therefore, the SPY ETF would be classified as a 'Hold' until more bullish signals emerge or until the ETF convincingly holds above its support level. A conservative approach would be to wait it out for the oversold conditions to bounce back or for the bearish sentiment to cool off situated by MACD.
