Conclusion, Investment Implications, Strategy
The daily total net assets invested in the SPDR S&P 500 ETF Trust (SPY, which tracks the S&P 500) are currently testing a major inflection point at $382.7 billion from below. How these assets respond to this level over the next one to several weeks will be seen as a key — if not leading — indication of whether the current broad market rally from the October lows is an emerging major bullish trend change, or just a countertrend rally in an uncompleted bear market.
Analysis and Rationale
The chart below plots the S&P 500 (SPX) daily since September 2021 in the upper panel, with a corresponding chart of the SPDR S&P 500 ETF Trust (SPY) along with its 21-day moving average in the lower panel. We use the 21-day MA to determine these assets’ monthly trend of expansion or contraction.
Chart 1
The red highlights in the lower panel identify the $382.7 billion level in assets, which has been a key directional inflection point for SPY and SPX. The green highlights show that these assets have been above their 21-day moving average since Oct 17th to indicate a trend of monthly expansion. Monthly expansion in these assets is the fuel that drives the broad market index higher.
However, the rightmost red highlights show that the $382.7B level is currently being tested again from below. Meanwhile, the upper panel shows that the S&P 500 is simultaneously testing major overhead resistance at its 200-day MA, currently at 4070, from below. This makes the 2070 area particularly important because overhead resistance is apparent in both price and assets invested.
Since asset flows typically lead price direction, it would take a sustained rise in assets above $382.7 billion, triggering a sustained rise above SPX 4070, to signal a major bullish trend change in the US broad market — and with it the end of the 2022 bear market. Conversely, if these assets start to aggressively contract from $382.7 billion, it would warn that the 2022 downtrend is resuming.