Stocks Trade Mixed, SPY Falls As Banks Kick Off Quarterly Earnings, But This Bullish Pattern Has Emerged

The SPDR S&P 500 ETF Trust SPY was volatile on Friday, as big banks kicked off quarterly earnings season, causing stocks to trade mixed.

Additionally, data released by the University of Michigan showed consumer confidence continued to drop in October, coming in at 63 compared to 68.1% in September. The data indicates Americans are still suffering the effects of high prices despite the Federal Reserve’s long cycle of hiking interest rates to bring down inflation. Read more here...

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After popping up slightly higher on Friday morning, the SPY was falling under Thursday’s closing price in the afternoon session. The decline, however, which began on Thursday, has settled the market ETF into a possible bull flag pattern on the daily chart.

It should be noted that big tech will begin to print earnings next week, and the reaction to those earnings prints could either accelerate the SPY's move higher or negate the bull flag pattern.

More experienced traders who wish to play the SPY either bullishly or bearishly may choose to do so through one of two Direxion ETFs. Bullish traders can enter a short-term position in Direxion Daily S&P 500 Bull 3X Shares SPXL and bearish traders can trade the inverse ETF, Direxion Daily S&P 500 Bear 3X Shares SPXS.

The ETFs: SPXL and SPXS are triple leveraged funds that track the movement of the SPY, seeking a return of 300% or –300% on the return of the benchmark index over a single day.

It should be noted that leveraged ETFs are meant to be used as a trading vehicle as opposed to long-term investments.

The SPY Chart: Although volatile, the SPY was trading on lower-than-average volume Friday, which indicates many traders are sitting on the sidelines, which falls in line with consolidation. When the flag of a bull flag is formed on decreasing volume, it adds validity to the pattern.

• The SPY’s bull flag pattern was formed between Oct. 6 and Friday, with the upward-sloping pole created over the first four trading days of that timeframe and the flag forming since. The measured move of the bull flag is about 4%, which suggests the ETF could eventually spike up toward the $448 mark.
• When the SPY started its ascent into the bull flag pattern, it bounced up from the 200-day simple moving average, which it had tested as support on each of the three days prior to Oct. 6. When a stock or ETF is trading above the 200-day SMA, it indicates a bull cycle is in play.
• If the SPY breaks up from the bull flag on higher-than-average volume next week, traders can feel confident that the pattern was recognized. If that happens, the SPY will also regain the 50-day SMA, which will give bullish traders more confidence going forward.
• The SPY has resistance above at $436.79 and at $447.06 and support below at $429.80 and at $414.09.

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