SPY ETF stock nears key price as Wells Fargo warns of a 10% meltdown

The SPY ETF stock has done modestly well in the past few weeks as concerns about the banking sector ease. The SPDR S&P 500 Fund rose to a high of $409.72, the highest point since February this year. But these gains could all come crashing down soon, according to analysts at Wells Fargo. 

Brace for a S&P 500 pullback

The SPY ETF, the biggest ETF in the world, could crash by more than 10% in the next few months, according to Wells Fargo analysts. If this happens, the fund will likely drop to about $368 and erase most of the gains made this year.

In a note, the analysts warned that the American economy faces a difficult path ahead after the collapse of Silicon Valley Bank. This collapse is expected to put limits on regional banks, which have recently lost billions in deposits as customers fear about their unrealized losses. Credit on consumers and businesses is expected to tighten. The report said:

“In our view, equity downside will be driven by worsening economic conditions, a function of: aggressive monetary policy; potential capital/liquidity issues catalyzed by the bank crisis; and a consumer that is increasingly reliant upon credit to sustain spending.”

Meanwhile, analysts at Goldman Sachs plotted what to expect after the American inflation data is published. The bank’s analysts believe that the S&P 500 index will drop by between 1% and 2% if it comes between 5.2% and 6%. A reading of 6% and above will see the index falling by at least 2%.

The biggest catalyst for the SPY ETF will be the upcoming bank earnings season, which will start on Friday. Economists believe that companies will publish weak earnings. In a note, analysts at Bloomberg said that profits of US firns will slip at the fastest pace since the pandemic. 

SPY ETF stock price forecast

SPY chart by TradingView

The daily chart shows that the SPY ETF has been in a strong bullish trend in the past few months. This rally saw the fund rise by over 17% from the lowest point in 2022. The ETF has jumped above the 50-day moving average and the 38.2% Fibonacci Retracement level. 

It also seems like it has formed an inverted head and shoulders pattern, which is usually a bullish sign. Therefore, I suspect that the ETF will have a bullish breakout in the coming weeks. This view will be confirmed if it moves above the resistance at $418.40, the highest point on February 1. Moving above that level will invalidate the double-top pattern.