Introduction:
The S&P 500 ETF (SPY) has shown signals of reaching its top, and a significant retracement seems to be on the horizon. This analysis explores the potential for a 40% downside over the next two years, providing a comprehensive view of the technical and fundamental factors behind this outlook.
Technical Analysis:
1. **Resistance at All-Time High (ATH):** The SPY has failed to break through its ATH, indicating a strong resistance level. A stop loss at this level is recommended.
2. **Value Area Low & Pre-Covid Run Retracement:** A downside target of 40% aligns with the value area low and pre-covid run levels, giving a confluence of support and potential reversal zones.
3. **200-Month Simple Moving Average (SMA):** The potential retest of the 200-month SMA provides a historical perspective and acts as a significant technical level.
**Fundamental Analysis:**
The macroeconomic environment, inflationary pressures, potential changes in fiscal and monetary policies, and global economic uncertainties may contribute to this bearish outlook.
**Trading Plan:**
- **Entry Point:** Entered on Aug 1st open after rejection of monthly resistance.
- **Stop Loss:** At ATH to protect against potential upside breakout.
- **Target:** 40% downside to the value area low and potential retest of the 200-month SMA.
- **Time Horizon:** Target expected to be reached by 2025.
**Risk Management:**
Proper risk management should be employed, including position sizing based on risk tolerance and continuous monitoring of both technical and fundamental factors.
Conclusion:
While the markets always hold a degree of uncertainty, the technical and fundamental signs point towards a significant downside in SPY by 2025. It's essential to approach this outlook with caution and proper risk management.
*Disclaimer: This analysis is for informational purposes only and does not constitute investment advice. Always consult with a financial advisor before making investment decisions.*
The S&P 500 ETF (SPY) has shown signals of reaching its top, and a significant retracement seems to be on the horizon. This analysis explores the potential for a 40% downside over the next two years, providing a comprehensive view of the technical and fundamental factors behind this outlook.
Technical Analysis:
1. **Resistance at All-Time High (ATH):** The SPY has failed to break through its ATH, indicating a strong resistance level. A stop loss at this level is recommended.
2. **Value Area Low & Pre-Covid Run Retracement:** A downside target of 40% aligns with the value area low and pre-covid run levels, giving a confluence of support and potential reversal zones.
3. **200-Month Simple Moving Average (SMA):** The potential retest of the 200-month SMA provides a historical perspective and acts as a significant technical level.
**Fundamental Analysis:**
The macroeconomic environment, inflationary pressures, potential changes in fiscal and monetary policies, and global economic uncertainties may contribute to this bearish outlook.
**Trading Plan:**
- **Entry Point:** Entered on Aug 1st open after rejection of monthly resistance.
- **Stop Loss:** At ATH to protect against potential upside breakout.
- **Target:** 40% downside to the value area low and potential retest of the 200-month SMA.
- **Time Horizon:** Target expected to be reached by 2025.
**Risk Management:**
Proper risk management should be employed, including position sizing based on risk tolerance and continuous monitoring of both technical and fundamental factors.
Conclusion:
While the markets always hold a degree of uncertainty, the technical and fundamental signs point towards a significant downside in SPY by 2025. It's essential to approach this outlook with caution and proper risk management.
*Disclaimer: This analysis is for informational purposes only and does not constitute investment advice. Always consult with a financial advisor before making investment decisions.*