SPY: Post-Breakout Bullishness Meets Fed Caution – What's Next?

SPY: Post-Breakout Bullishness Meets Fed Caution – What's Next?

Hello everyone! Let's take a look at SPY (S&P 500 ETF) on the daily timeframe, which has had quite an eventful October!

After some significant volatility earlier in the month, we've seen a strong surge, particularly after the positive U.S.-China trade news. This momentum has helped SPY to decisively break above a key resistance area.

Current Situation:

We've just cleared the recent breakout zone between 670 to 675. This is a very positive sign, indicating strong buying interest. However, price has moved up quite rapidly, creating a "Fair Value Gap" (FVG) – an area where price moved fast without much trading, which often acts like a magnet for future price action.
Now, with the upcoming Fed interest rate decision on October 29th and other economic data releases, we need to consider two main scenarios:

Scenario 1: The Ideal Bullish Continuation (Dotted Blue Line)

Our ideal outlook suggests that the market will continue its upward trend. For this to happen in a healthy way, we'd like to see SPY:
Retest the Breakout Zone: A small pullback to retest the 670 to 675 zone would be constructive. This confirms that the old resistance has now become strong support.
Continuation to the Trend: If this zone holds firmly after the retest, it would provide a solid base for the bullish momentum to continue, pushing SPY to potentially new highs. This retest is a common and healthy pattern after a strong breakout.

Scenario 2: Volatility & Potential Pullback (Dotted Orange/Blue lines and FVG)

We must also be prepared for increased volatility and a possible pullback. This could be triggered by:
Fed Decision & Economic Data: The Fed's interest rate decision and comments on Wednesday, October 29th, along with other key economic data, can introduce significant uncertainty and market swings.
FVG Fill: The rapid move up has left a "Fair Value Gap" (FVG) below. Price often retraces to fill these inefficiencies. A pullback to fill this FVG is very possible, especially if the Fed's stance isn't as dovish as hoped, or if other economic data disappoints.

Key Support Levels: If a deeper pullback occurs, we'll be watching:
Intermediate Support near 660: The first key area to potentially halt a decline.
650 to 655 Clear Support Area: This is a stronger support zone that has held previously, reinforced by the longer-term green trendline.

In Summary:
The overall trend is bullish following the breakout, but current levels are extended. Traders should closely watch how SPY reacts around the 670-675 level, especially in light of the upcoming Fed announcement. A successful retest and bounce would reinforce the bullish case, while a failure to hold, especially on negative news, could lead to a deeper correction towards our highlighted support levels.

Trade wisely and stay tuned for the Fed!

Disclaimer:
The information provided in this chart is for educational and informational purposes only and should not be considered as investment advice. Trading and investing involve substantial risk and are not suitable for every investor. You should carefully consider your financial situation and consult with a financial advisor before making any investment decisions. The creator of this chart does not guarantee any specific outcome or profit and is not responsible for any losses incurred as a result of using this information. Past performance is not indicative of future results. Use this information at your own risk. This chart has been created for my own improvement in Trading and Investment Analysis. Please do your own analysis before any investments.