Hello traders! As promised I am providing you with an update on SPY as well as what to look for and expect according to the chart and math projections. As always, long wordy post. I do recap the key points in the end though for those who don’t want to read it all :
So let’s break it down
Recap
SPY started the week off bullish, had some pull back to shake us up a bit, but finished the week overly bullish. I have to say, this was good and this was expected. For the past week I have been whining about SPY being so oversold and being almost -3 SDs away from its trading average which is really quite dramatic and unheard of. SPY was able to slightly bring itself up towards -2. However, I had commented to some people that for it to really bring its self out of the deep oversoldness, we really need to see a break and hold of over 400. It just seemed like it wasn’t going to happen, but again, never should I second guess the math lol. We got it! And I am actually relieved, because while I was prepared to go short on SPY, it really was going against what the math was saying. The flush we got on Thursday and Friday reassure me that the math was in fact correct and I should have just stuck with that haha (thankfully it happened before going short so no losses incurred!)
Time Series
SPY actually broke out of the time series projected range for the week which was 471 to 410, which is nothing to panic about and its very much in the spirit of SPY to do this. What this means simply is that this little bull run is a momentary deviation from the natural trajectory and it will get placed back on track shortly, just like we saw when SPY got derailed from its normal trajectory mid 2021 to the bullish side. It all resumes normalcy sooner than later.
Re-Running the data based on this weeks numbers hasn’t changed much. SAS essentially says “yeah, that’s cute. But 371.” Timeline still remains within the next 2weeks, bigger more interesting happenings at about 4 weeks out. However, because I am personally going to be investing large capital in shorting SPY, I am monitoring time series on SPY very closely to see if any of its behaviour ends up changing the trajectory and will update if I notice. I won’t get into the details, but I have run some hypotheticals on this, and there are some things SPY can do to actually deviate time series and change the expected timeline. Essentially that would involve seeing consistent closes of over 430, but let’s cross that bridge if we get there.
I want to just emphasize, I know many of you swing options vs shares so I get that this is important, but try to remember its not the timeline that is the most important, rather the targets. So SPY took its sweet A$$ time getting to this bounce, but the bounce was a mathematical certainty. So try not to limit your timelines and pay more attention to the targets (Which are covered next). For you brave soles swinging options, you must buy farther out expiries and don't get stingy with going really OTM. In order to prevent astronomical theta decay go slightly OTM but still close to ATM. Better yet, just read the theta value on your brokers platform and go by that (Keep in mind, I really have no business telling option traders what to do because I only swing shares and day trade options).
Weekly Trading Range
So because we have slightly deviated off time series course, I usually turn to SAS to give me a projected weekly range. How I do this is, again, looking at historical data but placing more emphasis on previous week data (this is how I correct for volatility) to make linear interpretations going forward. This yields the following range: 387 – 423.
Which means, we can see anywhere between 387 to 423. Can we see higher or lower? Yes, but right now SPY has committed to a full fledge bounce to bring it out of being oversold. So I would probably maintain a long bias for the time being and expect, if any level is to be broken, its going to be the 423 level. And thus, I don’t anticipate us to see that 387 unless the market is satisfied with the bounce mid next week. Which leads to the next point to cover:
How high of a bounce to expect?
You’re asking the right questions 😉. I see people posting ideas of the down channel that SPY is in (see yellow line in chart).
And this is a completely valid assumption. We could very well see this channel respected and I kind of lean to this interpretation.
But what does the math say? Well, the math works similar to the chart, but we see on the ZScore chart (posted below) that the last good bounce SPY had was about 1 SD deviation of a bounce, from around -1.5 to around -0.5. So far we have bounced 1 SD from the low of roughly -2.8 SDs. SOOOOO, we could very well see rejection any time, however the last time SPY did its 1 SD bounce it was not as deeply oversold as it was this time. The more oversold a stock tends to be on the Zscore, the more aggressive the rebound is. During COVID crash we saw a rebound of about 2.5 SDs from almost -4 SDs, and this was before any major announcements were made about interest rates and recovery etc. etc., this was just a massive technical rebound.
Personally, I would expect us to come back up at least to -1 SD before selling off. This would be a price of around 422 (also the top end of the weekly range SAS predicts, interesting.)
I think 422 is a safe area to begin CAUTIOUSLY scaling in short again. We also have a gap around this level which is kind of persuasive. But there is always the possibility, and kind of what I am feeling, that SPY wants to go to -0.5 if it really wants a nice and immediate drop. This would be a price of 432, which would complete the fill of that gap.
Any bounce would likely be capped at 445 which would be precisely neutral (0 ish SDs) and keeping in line with SPY’s general historic behavior (during corrections/bear markets the most SPY generally bounces is just slightly under 0 SDs).
To sum this section up, because I did throw a lot of numbers at you here, I anticipate rejection between 422 – 432. This would fill the overhead gap and would be technically and mathematically a good bounce. If 432 is broken we will be seeing 440 to 445, as SPY will likely go for complete neutrality at that point. Running probability assessments, probability is over 50% of seeing closes less than 445, so keep this in mind.
What to Expect Tuesday?
SPY is oversold on the 1 hour and 4 hour. Expect pullback Monday. That’s essentially it, expect pull back. The bearish break for Monday is 411.64 and bullish break is 417.91. I am anticipating this to maintain above the bearish break if this is a strong bounce. If we see SPY drop below the bearish break tomorrow, it would signal that SPY remains incredibly weak and the bounce is already losing steam. To be honest, a drop below the bearish break on Tuesday would signal that its really not safe to swing long IMO because SPY has not committed whole heartedly to an uptrend.
Sentiment:
Its too early to do accurate sentiment calculation. After weekends I do rely on my futures adjusted data analysis, so I will look at that on Monday night and update. But I think we should all just check in on the global trading session for futures on Monday, just to see what it does. It is generally meaningless because it always gets put in its place at market open hours, but it is always interesting to get a feel for how the global market and those ambitious North American retailers are feeling leading into Tuesday. I hope to see some optimism. And in fact, if we see a bunch of piling into futures on Monday, it generally would mean sentiment is overly positive and optimistic and people are trying to get in before market open on Tuesday. So, yeah, just check in, see what's up.
Recap Summary:
Just the facts, just the facts:
Weekly Trading Range: 387 – 423
Tuesday Bullish Break: 417.91
Tuesday Bearish Break: 411.64
Min Anticipated Bounce level: 422
Max Anticipated Bounce Level: 445
Level signifying trouble in bounceville: Break below 411
Probability of closes consistently below $445: 57%
Likely Behaviour Tuesday: Pullback to stabilize RSI, but must maintain that 411 level otherwise I would be slightly concern of trouble ahead.
Check back in Monday at 7/1900 EST and I will post an update for the sentiment analysis.
Thanks for reading!
Remember to leave your questions/comments and critiques below :-).
Take care everyone, enjoy the rest of your long weekend (unless you're Canadian, back to work tomorrow for you all ;) ).
So let’s break it down
Recap
SPY started the week off bullish, had some pull back to shake us up a bit, but finished the week overly bullish. I have to say, this was good and this was expected. For the past week I have been whining about SPY being so oversold and being almost -3 SDs away from its trading average which is really quite dramatic and unheard of. SPY was able to slightly bring itself up towards -2. However, I had commented to some people that for it to really bring its self out of the deep oversoldness, we really need to see a break and hold of over 400. It just seemed like it wasn’t going to happen, but again, never should I second guess the math lol. We got it! And I am actually relieved, because while I was prepared to go short on SPY, it really was going against what the math was saying. The flush we got on Thursday and Friday reassure me that the math was in fact correct and I should have just stuck with that haha (thankfully it happened before going short so no losses incurred!)
Time Series
SPY actually broke out of the time series projected range for the week which was 471 to 410, which is nothing to panic about and its very much in the spirit of SPY to do this. What this means simply is that this little bull run is a momentary deviation from the natural trajectory and it will get placed back on track shortly, just like we saw when SPY got derailed from its normal trajectory mid 2021 to the bullish side. It all resumes normalcy sooner than later.
Re-Running the data based on this weeks numbers hasn’t changed much. SAS essentially says “yeah, that’s cute. But 371.” Timeline still remains within the next 2weeks, bigger more interesting happenings at about 4 weeks out. However, because I am personally going to be investing large capital in shorting SPY, I am monitoring time series on SPY very closely to see if any of its behaviour ends up changing the trajectory and will update if I notice. I won’t get into the details, but I have run some hypotheticals on this, and there are some things SPY can do to actually deviate time series and change the expected timeline. Essentially that would involve seeing consistent closes of over 430, but let’s cross that bridge if we get there.
I want to just emphasize, I know many of you swing options vs shares so I get that this is important, but try to remember its not the timeline that is the most important, rather the targets. So SPY took its sweet A$$ time getting to this bounce, but the bounce was a mathematical certainty. So try not to limit your timelines and pay more attention to the targets (Which are covered next). For you brave soles swinging options, you must buy farther out expiries and don't get stingy with going really OTM. In order to prevent astronomical theta decay go slightly OTM but still close to ATM. Better yet, just read the theta value on your brokers platform and go by that (Keep in mind, I really have no business telling option traders what to do because I only swing shares and day trade options).
Weekly Trading Range
So because we have slightly deviated off time series course, I usually turn to SAS to give me a projected weekly range. How I do this is, again, looking at historical data but placing more emphasis on previous week data (this is how I correct for volatility) to make linear interpretations going forward. This yields the following range: 387 – 423.
Which means, we can see anywhere between 387 to 423. Can we see higher or lower? Yes, but right now SPY has committed to a full fledge bounce to bring it out of being oversold. So I would probably maintain a long bias for the time being and expect, if any level is to be broken, its going to be the 423 level. And thus, I don’t anticipate us to see that 387 unless the market is satisfied with the bounce mid next week. Which leads to the next point to cover:
How high of a bounce to expect?
You’re asking the right questions 😉. I see people posting ideas of the down channel that SPY is in (see yellow line in chart).
And this is a completely valid assumption. We could very well see this channel respected and I kind of lean to this interpretation.
But what does the math say? Well, the math works similar to the chart, but we see on the ZScore chart (posted below) that the last good bounce SPY had was about 1 SD deviation of a bounce, from around -1.5 to around -0.5. So far we have bounced 1 SD from the low of roughly -2.8 SDs. SOOOOO, we could very well see rejection any time, however the last time SPY did its 1 SD bounce it was not as deeply oversold as it was this time. The more oversold a stock tends to be on the Zscore, the more aggressive the rebound is. During COVID crash we saw a rebound of about 2.5 SDs from almost -4 SDs, and this was before any major announcements were made about interest rates and recovery etc. etc., this was just a massive technical rebound.
Personally, I would expect us to come back up at least to -1 SD before selling off. This would be a price of around 422 (also the top end of the weekly range SAS predicts, interesting.)
I think 422 is a safe area to begin CAUTIOUSLY scaling in short again. We also have a gap around this level which is kind of persuasive. But there is always the possibility, and kind of what I am feeling, that SPY wants to go to -0.5 if it really wants a nice and immediate drop. This would be a price of 432, which would complete the fill of that gap.
Any bounce would likely be capped at 445 which would be precisely neutral (0 ish SDs) and keeping in line with SPY’s general historic behavior (during corrections/bear markets the most SPY generally bounces is just slightly under 0 SDs).
To sum this section up, because I did throw a lot of numbers at you here, I anticipate rejection between 422 – 432. This would fill the overhead gap and would be technically and mathematically a good bounce. If 432 is broken we will be seeing 440 to 445, as SPY will likely go for complete neutrality at that point. Running probability assessments, probability is over 50% of seeing closes less than 445, so keep this in mind.
What to Expect Tuesday?
SPY is oversold on the 1 hour and 4 hour. Expect pullback Monday. That’s essentially it, expect pull back. The bearish break for Monday is 411.64 and bullish break is 417.91. I am anticipating this to maintain above the bearish break if this is a strong bounce. If we see SPY drop below the bearish break tomorrow, it would signal that SPY remains incredibly weak and the bounce is already losing steam. To be honest, a drop below the bearish break on Tuesday would signal that its really not safe to swing long IMO because SPY has not committed whole heartedly to an uptrend.
Sentiment:
Its too early to do accurate sentiment calculation. After weekends I do rely on my futures adjusted data analysis, so I will look at that on Monday night and update. But I think we should all just check in on the global trading session for futures on Monday, just to see what it does. It is generally meaningless because it always gets put in its place at market open hours, but it is always interesting to get a feel for how the global market and those ambitious North American retailers are feeling leading into Tuesday. I hope to see some optimism. And in fact, if we see a bunch of piling into futures on Monday, it generally would mean sentiment is overly positive and optimistic and people are trying to get in before market open on Tuesday. So, yeah, just check in, see what's up.
Recap Summary:
Just the facts, just the facts:
Weekly Trading Range: 387 – 423
Tuesday Bullish Break: 417.91
Tuesday Bearish Break: 411.64
Min Anticipated Bounce level: 422
Max Anticipated Bounce Level: 445
Level signifying trouble in bounceville: Break below 411
Probability of closes consistently below $445: 57%
Likely Behaviour Tuesday: Pullback to stabilize RSI, but must maintain that 411 level otherwise I would be slightly concern of trouble ahead.
Check back in Monday at 7/1900 EST and I will post an update for the sentiment analysis.
Thanks for reading!
Remember to leave your questions/comments and critiques below :-).
Take care everyone, enjoy the rest of your long weekend (unless you're Canadian, back to work tomorrow for you all ;) ).
Commento:
Forgot to mention in sentiment,
You can also on holidays (American) watch HSU. HSU is the Canadian Leveraged S&P 500 stock. If you take a look at the 5 minute chart from today on HSU, you see this:
It will follow futures essentially, but its a direct leverage of S&P.
Cool stuff, enjoy the rest of your weekend!
You can also on holidays (American) watch HSU. HSU is the Canadian Leveraged S&P 500 stock. If you take a look at the 5 minute chart from today on HSU, you see this:
It will follow futures essentially, but its a direct leverage of S&P.
Cool stuff, enjoy the rest of your weekend!
Commento:
Sentiment analysis update:
So, I was tempted to dip my toes into HSU today and cheat, just in case SPY wanted to gap up tomorrow. But yeah, there was a lot of zealous buying and now people are taking profits. Nothing to panic about though! I know it looks a little bearish and that daily candle from Today was not great looking, but you have to take it in context with what today was. Likely a lot of scalping, people jumping in to pump and then take profits.
The math is giving me confident readings, indicating a bullish sentiment insomuch as it expects us to 100% maintain levels above 406 and 60% to maintain levels above 411. These are great odds IMO.
But again, be very cautious. Wait for pull back and confirmation. Like I said, SPY is technically at a point where it has found satisfaction from pull back (it has so far bounced slightly over 1 SD from its low), so be careful. Remember they key level here is 411 (at least statistically). A break of this level is not good news.
Be patient, careful and cautious! =)
Thanks again for reading!
So, I was tempted to dip my toes into HSU today and cheat, just in case SPY wanted to gap up tomorrow. But yeah, there was a lot of zealous buying and now people are taking profits. Nothing to panic about though! I know it looks a little bearish and that daily candle from Today was not great looking, but you have to take it in context with what today was. Likely a lot of scalping, people jumping in to pump and then take profits.
The math is giving me confident readings, indicating a bullish sentiment insomuch as it expects us to 100% maintain levels above 406 and 60% to maintain levels above 411. These are great odds IMO.
But again, be very cautious. Wait for pull back and confirmation. Like I said, SPY is technically at a point where it has found satisfaction from pull back (it has so far bounced slightly over 1 SD from its low), so be careful. Remember they key level here is 411 (at least statistically). A break of this level is not good news.
Be patient, careful and cautious! =)
Thanks again for reading!
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I am so used to SPY being oversold it just comes instinctively hahaha.