SPDR SPY ETF forms a bullish pattern as the fear and greed index rises

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The fear and greed index has slowly moved to the greed zone, pointing to more gains – but also risks – for the SPDR S&P 500 ETF (SPY). The fund has been in a strong bullish trend in 2023, bringing the gains from its November lows to 14.5%.

Fear and greed index rising

The fear and greed index is an important tool that looks at some of the most important gauges in Wall Street. Unlike the VIX index, it looks at a combination of factors when assessing the state of the financial market. The VIX looks at the options data of the S&P 500 index alone.

A closer look at the fear and greed index shows that the stock price strength has moved to the extreme greed area. This is a figure that looks at the number of shares hitting their 52-week highs. The stock price breadth figure, which uses the McClellan Volume Summation Index, is also at the extreme greed.

Meanwhile, the put and call options and safe haven demand are at the greed area while the VIX index has dropped to the neutral point of 20. Market momentum, which uses the 125-day moving average on the S&P 500 index is also at the neutral area. In all, the index is at 63.

Fear and greed index
Fear and greed index chart

Still, according to a JP Morgan analysts, this could be a bear market rally, meaning that the SPY ETF could come crumbling down. Speaking to CNBC, Marko Kolanovic, JP Morgan’s Chief Strategist, cited numerous factors that could push stocks lower.

For example, he noted that higher interest rates were significantly slowing growth. Some of the evidence for this are the tumbling house prices, low demand for new and used cars, and falling retail sales. Contrary to ING’s analysts, he believes that the Fed won’t cut rates in 2023. 

Further risks that could drag the SPDR S&P 500 ETF lower are the weaker economic data which is raising the possibility of a hard landing. However, bulls argue that a recession would actually be a good thing for stocks since it will push the Fed to start pivoting soon.

SPY ETF stock analysis

SPY ETF

SPDR S&P 500 chart by TradingView

The 1D chart shows that the SPY ETF has been in a strong downward trend starting from December 30th of 2021. This decline has been supported by the descending trendline shown in red. It is currently stuck slightly below this trendline. The stock has moved to the 38.2% Fibonacci Retracement level.

Further, it is being supported by the 50-day and 25-day moving averages. Behind the scenes, there are signs that the index has formed two inverted head and shoulders patterns. Therefore, a volume-supported move above the descending channel will see the SPY stock soar to the 61.8% Fibonacci Retracement level at $430.

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