Fundamentally we know the story: unemployment and low retail sales in the US economy are all the talk. And while the January effect coupled with inflationary stimulus packages may have helped the market engineer a bit of a rally, the economic woes are still clearly in place, and it looks as though the primary trends are preparing to resume themselves. For instance, at the time of this writing, S&P 500 futures are pointing to a fifth loss in a row.
Technically we see a nice potential trade lining up on SPY, particularly if SPY can break support at 85.43. The market is now trading below the 5, 10, 20, and 50 simple moving averages, all of which are converging -- another indication the bear market rally may be concluding. A break below 85.43 could pave the way for a retest of previous lows at 75.
Check the chart below.
A lower S&P 500 is also generally correlated to a stronger yen. We have seen the yen begin to rally again, as the USDJPY exchange rate has broken below 90. The chart below plots the USJPY (blue and gray candles) against the SPY (red and green candles). In sum, a resumption of the bear trend in the S&P would be a bearish sign for USDJPY, which stock market traders can take advantage of via the FXY ETF.
