S&P 500 Outlook: How Far Will SPY Stock Fall From Here?

Stock Market

The S&P 500 has been getting pummeled. That goes for the index, the S&P futures (ES) and the SPDR S&P 500 ETF (NYSEARCA:SPY). SPY stock is not the worst performer of the major U.S. indices, though. The Nasdaq is, barely edging out the Russell 2000, with its 26% decline.

SPY is down about 15% from its high, which was made on Jan. 4. It has endured its worst four-month start since 1939. To some extent, it’s hard to be bearish under these observations. At the same time though, there are a number of key issues that continue to persist, making it tough to be bullish.

Almost a month ago I wrote about four reasons to be cautious on the SPY stock. Specifically, I included:

  • Inflation remains elevated.
  • The conflict in Ukraine is persisting.
  • Poor technicals.
  • A hawkish Federal Reserve.

The S&P 500 could probably handle one or two of these issues and be okay. But to have all four constantly fighting for attention makes things difficult. Interestingly, all four of these things could get worse, but all four could also improve.

If inflation continues to roar, it will force the Fed to remain — or perhaps become even more — hawkish. The conflict in Ukraine could escalate and create more geopolitical tension.

On the flip side, the conflict could be resolved in Europe. Inflation, which is showing signs of peaking, could cool off and that could allow the Fed to ease its hawkish stance a bit.

This is important, though. Unfortunately, none of these improvements are happening right now. We are caked in uncertainty and the market hates uncertainty.

When we look at the chart, it’s been a disaster. It has essentially been one large “ABC” correction. In the midst of the “C” leg now, the question becomes, where is the low?

In the short-term, it could be close. This was a busy week with the Fed’s rate-hike decision on Wednesday — its first 50 basis point increase in more than two decades — and the jobs report on Friday. We’re teetering on the recent low and the first-quarter low, as well as the 21-month moving average.

This has been combined with some extreme downside breadth, although perhaps not enough to call it a capitulation. We will see in the coming days.

If a further washout is on the table, the $400 level and $400.67 gap-fill mark stand out to me. If it’s nothing more than a bounce and SPY stock eventually breaks below it, the $375 to $380 zone stands out to me. In this area, we find the 161.8% downside extension. It’s also where the index would be down 20% from the highs.

On the upside, $430 stands out as clear resistance. That’s the two-week high, too. Above that and the $440s could be in play. Until then, stay on your toes.

On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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