2021 has been a bullish year for S&P 500 ETF (SPY) where it closed at 470.6 at the all-time high level before Christmas, hit a year-to-date gain of 27%.

Macro Environment for SPY in 2022

The Federal Reserve has been under pressure to raise the interest rate in response to rising inflation where the FED officials see as many as 3 rate hikes coming in 2022. Besides, the FED indicated that it will accelerate the tapering of monthly bond buying program in 2022. The FED plans to buy $60 billion worth of bonds each month starting in January 2022, down half the level from the previous amount it bought in November 2021, as reported by CNBC.

On top of that, the global money supply (M2) is expected to decelerate rapidly with acceleration of the reduction of the monthly bond purchasing.

The macro environment in 2022 such as the interest rate hike, acceleration on tapering of the bond buying program and shrinking of the global money supply are likely to pose a challenging environment to the S&P 500 ETF (SPY).

In fact, since FED’s announcement on tapering on bond purchases in November, lots of growth stocks have experienced big drawdowns of 30%-60% from their peak while less than 50% of stocks are above 200-Day average, which was a red flag as detailed in the post on the divergence between the stock market breadth and S&P 500.

Price Volume Analysis for SPY

Despite the challenging macro environment, it is essential to study the price volume analysis for S&P 500 ETF (SPY) in order to form a directional bias and to anticipate the potential movement.

SPY is in an up channel where the axis line (resistance-turned-support) nears 450 has been tested and supported twice. The change of character as defined by the largest down wave has successfully halted the up trend since October and into a trading range between 450-470.

The two pullbacks within the trading range were accompanied by increasing of volume suggested the supply level is still high and likely needed to be tested again.

SPY is at the resistance of 470, which is vulnerable for a pullback. For a bullish case, a pullback forms a higher low above 450 with decreasing volume is ideal.

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Should the support at 450 fail to hold, SPY is likely to test the next support at 430. As of now, SPY is still in Wyckoff phase B where volatility is still high.

Market Internals for Stock Market

Despite the relatively bullish chart in S&P 500 ETF (SPY), the market internals as reflected by the sign of weakness in the market breadth do not paint a bullish picture moving forward.

The conflict between the market breadth and the SPY is because of a handful of heavy weightage stocks still support the price of SPY, unlike many other individual stocks experienced significant pullback since November.

SPY Price Forecast in 2022

Based on the challenging macro environment, the price volume analysis and the market internals, increasing of volatility with a prolonged trading range between 430-470 could be expected for S&P 500 ETF (SPY), once it breaks the support at 450, as shown below.

Should this happen, trading environment will be challenging, which could favor in swing trading and day trading because of the increasing of the market volatility.