SPY Climbs Higher In Lead Up To Fed Decision: This ETF Offers 3X Leverage To Upside

Author: Melanie Schaffer | June 14, 2023 11:50am

The SPDR S&P 500 (NYSE:SPY) was edging higher Wednesday, amid the countdown to the Federal Reserve’s decision on interest rates.

The central bank is likely to take into consideration producer price index data released before the market opened, showing the economy has entered a period of deflation.

Consumer price index (CPI) data also came in softer-than-expected. Afterward, chief economist of the International Institute of Finance Robin Brooks called on the central bank to pause its rate hike campaign.

The expectation that the Fed will hold interest rates steady Wednesday caused the SPY to react bullishly, although a pullback is likely on the horizon over the next few trading days.

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More experienced traders who wish to play the SPY either bullishly or bearishly may choose to do so through one of two Direxion ETFs. Bullish traders can enter a short-term position in Direxion Daily S&P 500 Bull 3X Shares (NYSE:SPXL) and bearish traders can trade the inverse ETF, Direxion Daily S&P 500 Bear 3X Shares (NYSE:SPXS).

The ETFs: SPXL and SPXS are triple leveraged funds that track the movement of the SPY, seeking a return of 300% or –300% on the return of the benchmark index over a single day.

It should be noted that leveraged ETFs are meant to be used as a trading vehicle as opposed to long-term investments.

The SPXS Chart: SPXL broke up from a bull flag pattern on June 9, back tested the level as support later that day and reacted bullishly, rising over 6% since then. The measured move of the bull flag is about 9.3%, which suggests the local top may be in soon for the ETF.
SPXL is also trading in an uptrend, making a consistent series of higher highs and higher lows. The ETF’s most recent higher low was formed on June 8 at $79.93 and the most recent confirmed higher high was printed at the $82.17 mark on June 5.
If SPXL closes the trading day near its high-of-day, the ETF will form a bullish Marubozu candlestick, which could indicate higher prices will come again on Thursday. The second most likely scenario is that the ETF starts to consolidate sideways, which could cause an inside bar pattern to form.
Over the next few days a pullback, at least to print another higher low is likely because SPXL’s relative strength index (RSI) is measuring in at about 73%. When a stock’s or ETF’s RSI exceeds 70% it becomes overbought, which can be a sell signal for technical traders.
SPXL has resistance above at $87.70 and $94.43 and support below at $82.74 and $79.03.

Next: Apple Edges Toward All-Time Highs As Market Awaits Fed Decision: The Bull, Bear Case