Testing the waters at 554

After a substantial rally from recent lows, we’ll see if SPY continues toward all-time highs or finds resistance around 554, where we closed slightly above on Friday. It would be pretty amazing price action to see a recovery of the rising wedge after such a steep decline.

Unstable foundations

As we’ve seen since last November, it’s obvious that there are strong forces underneath this rally, none of which set up a strong foundation for continued higher prices. Whenever the switch flips—and it will—there won’t be any support base until SPY revisits around 450. Some traders with a strong track record claim that 500 will be the bottom on any correction, but I find it hard to understand the reasoning. Nevertheless, the 500 psychological level is one to keep in mind.

Alarming growth

It’s impossible to argue that over enough time, the S&P 500 has always rallied. What’s alarming about this recent action is how fast and aggressive the growth has been. The two-year decline we saw post-Covid looks minuscule compared to the last nine months. The only other time on the chart with such aggressive growth was after the initial Covid drop back in March of 2020. I would argue that even that recovery hasn’t seen its retest yet.

Only time will tell, but until current economic headwinds are just a memory, I will err on the side of caution and wait for an opportunity to capitalize on investor fears.