Market Analysis for The Week Ahead
SPY QQQ 2/23-2/28
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We have been monitoring SPX 6145.66 for a number of months as a key upside extension. A fair number of charts have been reactive at their full extension of their 2022 high to 2022 low.
This also corresponded to the top of the box range we have been trading in ES. The ES “inception box” as of last week:
Because of this we were monitoring for the following scenario to potentially form a major swing high.
High of day on Wednesday was 6147.43 on SPX and 6166.5 on ES (a quick look above and fail of the top of the box).
While Friday looked quite nasty, we are still well within the box (and the upper half of it at that). It is important to maintain an awareness of the possibility that the entire box could be traversed down to January lows, but it needn’t be a base case. We stalled Friday at a major spot which happened to contain the YTD VWAP and an AVWAP off the December FOMC. SPX/SPY tagged their 50-day sma. The risks of seeing the bottom of the box are perhaps heightened by the presence of the following broadening formation (for which I’ve used SPY for a clean visual).
We didn’t quite take out last week’s low on Friday which could be perceived as a subtle sign of weakness from sellers, but we had sold off quite a bit already on Friday so perhaps we will forgive them that. Both the ES and SPY profiles have some key characteristics a bit lower that could prevent a full box traverse and potentially serve as a trap. This week likely falls into the category of “sometimes testing lower first is less bearish than testing higher first and failing.”