VOO and SPY ETFs have retreated: Buy the dip or sell the rip?

The Vanguard S&P 500 (VOO) and SPDR S&P 500 (SPY) have retreated in the past few weeks as investors embrace a risk-off sentiment. VOO has pulled back to $406.5 while the SPY fund has fallen to $443.

Is it safe to buy this dip?

VOO and SPY are the biggest funds that track the performance of the S&P 500 index. As such, the two funds have a close correlation and typically move in the same direction.

The two funds have retreated recently amid rising concerns about the US and Chinese economy. On Tuesday, as I wrote here, China published weak economic numbers, pushing more analysts to downgrade their estimates. 

These numbers coincided with the harsh rhetoric about China from Washington. Republicans and some Democrats have argued that the recent sanctions by Joe Biden don’t go far enough.

Therefore, there is a likelihood that most American companies will struggle to do business in China, their key markets. Some of the top S&P 500 companies like Apple, Nvidia, and Tesla do a lot of business in China.

There are also risks in the American economy. Last week, Moody’s downgraded the rating of several regional banks. It also placed several big banks like Northern Trust and State Street in review for downgrades.

Now, Fitch has warned that it will downgrade American banks, including blue chips like JP Morgan. It recently downgraded the American credit rating from AAA to AA+.

Further, there are risks about some parts of the economy. While US retail sales jumped, there are concerns that it will slow as people with student loans start paying it back. In a statement on Wednesday, Target decided to slash its outlook because of these fears. Its net sales dropped by 4.9% to $24.8 billion.

Investors are also concerned about the valuation of several companies. On Tuesday, I warned that Nvidia’s valuation was getting out of hand.

VOO ETF forecast

The daily chart shows that the VOO ETF has been in a downward trend in the past few days. Despite the sell-off, the shares remain above the 50-day moving average, which is a positive sign. It is also above the ascending trendline shown in green.

The MACD has also moved downwards as the two lines approach the neutral level. Therefore, I believe that VOO and SPY funds will bounce back in the coming weeks and retest the YTD high of $422.45. In the short-term, the shares will likely see some volatility, which could see it retest $400.