SPY Trading Levels & SPY Darkpool Analysis

Rebel Hub Education

by

Justin Nugent

August 1, 2023
at 1:26 PM

Inside Market Rebellion’s services, we mostly focus on individual stocks. However, with the help of options (and a low IV environment like the one we’re seeing now), sometimes the best performance can come from trading directly in the most highly traded, most liquid ETF on the market — that’s SPY. Lately, we’ve seen a few events that have us looking at SPY with new eyes.

SPY Darkpool Trades

Last week, we noticed a number of massive darkpool trades in the SPY ETF. For those unfamiliar, darkpool exchanges allow institutions and hedge funds to quietly amass large positions without driving up the price of the underlying stock. In this case, these institutions were amassing shares in the SPY. All of the following were bought last week, mostly on Thursday and Friday.

$1.2 billion dollar trade at $456.95.
$2.5 billion dollar trade at $455.41.
$3.5 billion dollar trade at $455.37.
$3.1 billion dollar trade at $452.49.
$4.2 billion dollar trade at $452.49.
$2.9 billion dollar trade at $452.45.

When you see activity like this, it can be hard to understand what this really “means” — what’s considered a “large” darkpool trade? For context, more than $2 billion in a single trade is a lot. Seeing them back, to back, to back is even more notable. This creates a massive supply zone which can act as a level of support. That’s what happened last week, and to a lesser extent, it happened on Monday’s close as well. If the support holds, that’s bullish. However, supporting your bullish bias isn’t the only way to use these darkpool levels.

On Friday, we noticed the $455.41 level acting as support which helped create a short-term double bottom during that day’s trading. Monday, at 3:50PM EST, which was also the low of the day ($456.05), we noticed a massive spike in volume (highest volume of the day on the open market) that helped propel the SPY ETF more than a dollar higher within a blink of an eye, sending the SPY into positive territory, closing at $457.79.

From here, we think it’s clear: The trend is your friend. And while currently that trend is bullish, you need to keep an eye out for trades on both sides of the fence. With that said, from a medium and long-term perspective, in this writer’s view, we’re likely in a dip-buyers market. That means any bearish positions entered should have a clear target and thesis in mind.

RELATED: In a note Monday, Goldman Sachs says long/short hedge funds have experienced their worst losing streak since January of 2017, and notes signs of capitulation in bearish institutional traders. We think these massive darkpool trades are a symptom of that capitulation.

“Long/short hedge funds experienced nine consecutive days of negative returns before July 28, which is the longest streak since January 2017.”
Goldman Sachs

SPY Technical Levels

So with all that in mind, we see a market that hangs on a knife’s edge. As we move through the remainder of earnings season, here are a few levels you can watch and trade off of:

$473: A notable area of resistance appearing between November 1st through December 20th, 2021.
$462: The next upper level of resistance dating back to the first half of 2022, where a March 28th breakout failed, and a January break-lower prevailed.
$458.62: Daily triple top from Friday’s trading — also a key level dating back to 2022. Crossing above this level would be very bullish up to $462.
$455.41: Double bottom from Friday, and a price point that is attached to $6 billion dollars in very recent darkpool trades. Massive supply zone which should act as a level of resistance for the market — if it doesn’t, that’s bearish.
$452.49: Adding in the trade at $452.45, this price point is attached to $10.2 billion dollars in darkpool trades from last week. Falling to this level would be the last line of defense for bulls to try a bounce — a break below this level would likely lead to a pullback to the gap between $444.91 and $442.97).
$444.91-$442.97: Unfilled gap in the SPY daily candles formed between July 11th and July 12th. Gaps can act like magnets for price action, and they’re commonly filled. If we break below $452.49, this area would be an excellent price target for a bearish trade. However, as we said above, if this happens, be careful — it’s a tricky, trap-filled market right now where hedge funds are hunting for dips like these to make up for all the first-half gains they missed out on.

Below, note the chart courtesy of TradingView depicting the $452.49 level in red, the $455.41 level in blue, the $458.62 level in green, and the $444.91-$442.97 gap in purple.

SPY Options Trade Idea

Bullish: If a SPY hourly candle closes above $458.62, consider August 11th $460 call options for a quick flip to $462. Keep an eye on SPY’s reaction to the $455.41 level for a signal of SPY’s upward strength. If SPY rallies to $462, consider a roll or a trim in position as SPY attempts the next upper level. If a SPY hourly candle closes below $452.49, exit the bullish trade.

Bearish: If a SPY hourly candle closes below $452.49, consider August 11th $450 put options to trade for the gap fill to $442.97. When the gap is filled (no hourly candle required), consider closing the position for a profit. If a SPY hourly candle closes back above the $452.49 level, exit the bearish position and reassess.

A Few Important Tips For Options Traders, and a Note

First, our note: This week we’ll see earnings reports from Apple and Amazon, two highly weighted stocks in the S&P 500. Their earnings reaction will have a pull on the S&P 500’s price movement — however, we believe that these levels are still keenly important. Remember: When trading, it isn’t really about the earnings report, or the numbers, it’s about the stock market’s reaction to the report.

As you consider these trade ideas, here are three important tips:

As a rule of thumb, never put on a trade that you don’t feel confident in.

Also important: Know your risk tolerance. Many traders like to use no more than 1% of their portfolio on a single position. If your percentage is higher, that’s okay — but know what it is, and don’t overexpose yourself.

Lastly, while we’ve given some suggested areas to take profit or cut losses, a common rule of thumb that has worked time and time again for this writer has been to cut ties with a losing position if it falls to 50% of it’s original value (AKA: it gets cut in half) and to roll the position to a cheaper one if the position reaches 100% profit (AKA: the position doubles in value). This can help you keep more money in your pocket, and avoid sitting in a bad trade.

As always, discipline is more important than any trade idea — so many sure you use it!

Good luck out there, rebels!

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