SPY Stock is an Even Stronger Buy Today, But Not Without Risks

  • SPDR S&P 500 ETF Trust (TO SPY) rallied strongly, but the odds also favor a continued bullish reaction.
  • Doubters and warnings off and on S&P500 the price chart persists.
  • Investors should use a modified collar to manage downside exposure at no cost.

Source: Funtap/Shutterstock

“March Madness” continued an impressive comeback for the bulls in the SPDR S&P 500 ETF Trust (NYSEARC:TO SPY). Last week, the listed index fund gained 1.84%. And with the month countdown, SPY stock is up 4%.

More positive, the S&P500 latest confirmation of a new bull market, came under difficult circumstances.

The rally shrugged off hawkish comments from Federal Reserve chief Jerome Powell. At the start of the week, the biggest banker warned that interest rates could be raised more aggressively than the 25 basis point program presented at the FOMC meeting.

SPY also managed to shake off rising oil prices during the week, as well as continued escalations in both basins related to the Russian invasion of Ukraine and Covid-19 in China.

Of course, not everyone agrees with the new bull market in SPY stocks. Let’s take a look at what’s stirring the bears and pushing the bulls today, then offer a risk-adjusted determination aligned with those findings.

TO SPY SPDR S&P 500 ETF Trust $454.27

Bearish ammo to kill the SPY stock rally

Entering the week, a new phase Containment related to covid-19 in Shanghai is raising new concerns that global economic expansion is under threat. Although SPY is trading mostly flat in Monday’s session, bears will point to a more than 5% drop in Crude Oil as a harbinger of weakening demand and slowing growth. .

Monthly nonfarm payrolls are another threat to the S&P 500 rally. Data for March is expected to be released Friday morning. Anything short of a Goldilocks jobs situation could cause the Fed to heed last week’s interest rate warning at the expense of SPY.

The bears warning that the SPY rally is a dead cat bounce in a market correction also have a 2/10 year Treasury yield curve to help their case.

The bond spread is about to reverse. If this continues, it could weigh on the S&P 500, as every recession since World War II has been preceded by this price irregularity.

The SPY stock chart also reported a concerning death cross pattern this month. On March 16, the 50-day simple moving average fell below the 200-day simple moving average for the first time in nearly two years.

Finally, the bears may warn that the S&P 500 is expensive. Among those warning, BofA noted recently SPY is historically expensive on the majority of the 20 metrics it tracks by 40%.

What Matters for S&P 500 Bulls

Respectfully, bears have their grievances. But it takes two to consume a trade, and being too quick to ignore SPY’s rebound over the past two weeks could be a mistake.

Buying the S&P 500 has proven to be a historically strong investment. And after a correction cycle like this year’s, investors can expose themselves to Apple (NASDAQ:AAPL), Nvidia (NASDAQ:NVDA), Costco (NASDAQ:COST) and other proven heavyweights on the market at a reduced price.

It is true that the SPY has rallied strongly from its low and could consolidate its gains. However, with a technical basis follow-up day (FTD) in place – and critical to producing a bull market from a dead cat bounce – bulls have definite evidence to be bullish.

What about the death cross of SPY stock? The latest incorrectly nailed the historic low in the Covid-19-induced bear market. And it’s easy to see why.

Not only is the popular pattern a lagging indicator, but in exaggerated and historically scary cycles like the 2020s and this year, it’s even more likely to be late to the party.

Buy SPY stocks today with less risk

SPDR S&P 500 ETF Trust (SPY) Internal Hammer Monthly Training
Source: Charts by TradingView

With less than a handful of trading sessions remaining in March, SPY shares’ monthly gains of 4% visually hint at further upside.

A bullish inside hammer candlestick and stochastics just hitting oversold levels provide a nice platform to pull further out of the 2022 market correction and extend the bullish redux of the previous 20s.

Are there any risks? Absoutely. For one thing, every tracking day or SPY’s handsome bottoms won’t be successful. In fact, we might be watching a dead cat bounce.

Additionally, BofA’s more tenuous price warning from SPY primarily serves to confirm that the bulls could be walking a tightrope with serious consequences.

If this month’s FTD fails, the S&P 500 ETF could slip to $350-$360 before finding more meaningful chart support. Ultimately, having exposure to SPY stocks today makes more sense than not.

Considering the pros and cons of SPY, buying a fully hedged collar or a modified variation of the stock are strategies to consider. A preferred vehicle is buying stocks with partial protection against a $435/$400 May sell spread and funded by the May $465 short call for a small credit.

As of the date of publication, Chris Tyler had (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.

The information offered is based on the observations of Christopher Tyler and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related thoughts, follow Chris on Twitter @CAT_Options and StockTwits.

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