While I was starting to lean due to recent new highs on many tech stocks thinking that the "S&P 500" had only a consolidation through time and not through price - the market might now finally start to move with the cycle again and therefore begin to decline as already fell lower ahead of the cash open and the "VIX" had recently a strong move higher on the FED decision day this week.
Short entry: 2780-2795
Target: open intraday gaps way below 2700, around 2692
Stop loss: 2809
Risk/Reward from 2780 down to 2700: 2.76
The S&P 500 could fall lower next Monday (that would a strong downtrend), but there could also be a bounce on Monday which then could later get sold again, which is less risky than shorting below 2770.
As I just explained: Short-term the "buy the dip" crowd might lift the market up again. And they could move the market in the same swing above 2800. Only if the market again fails to break higher can a short be placed with less risk of a short squeeze.
My scenario explained with a chart. The time spans can be very different or I could be totally wrong about this:
If Monday gaps up above 2780 I'm going to add a second short position next week.
The "buy the dip" trend remains so far active though with the market trying to bounce higher again, therefore if the market goes today back above 2769.5 I'm going to close the short in profit. Otherwise the plan is to keep the short open and wait for further declines.
The S&P 500 already moved higher above 2771 since then. The open gap is located around 2776.
Closed my short with a minor loss at 2772.
While I had expected that more declines would be possible later on Tuesday. My idea was that there would be at least one minor bounce higher and maybe even a gap up on Tuesday's open. Which would have been the perfect moment to open a fresh short from a higher position than 2771-2773. This may still happen, but the odds are way much lower after the very bearish price action the S&P 500 had before the open.
I had also researched in advance on Monday that Trump could increase his trade war from $50 Billion to $100 Billion, but my thinking was the next wave of tariff announcements would start later this week.
Instead I was dead wrong on that. Trump quadrupled his trade war size against China to $200 Billion after the US stock markets had already closed Monday. Which then strongly hammered the S&P 500 futures market lower overnight before Tuesday open, while I was sleeping.
Now the market is nearing short-term panic levels, which means the best (lowest risk) price area to short from is not available anymore.
This is a hedge against downside risk. I don't think it will work out, but I don't know what tariff news is going to come out after the market closed.
The low yesterday was 2744.39, but S&P 500 futures had made a lower low on June 19 at 2735.75, which means there is a higher probability that the S&P 500 could decline towards 2733-2736 (2740). Therefore I keep my short from 2774 open despite today's market advance, which could extend into next Monday. Before the S&P 500 could resume this trend downwards.
If you don't want to risk giving up all your profits from the short I recommend to close the short this Friday. I'm only going to close my short if it reaches break even.
P.S. I wrote a longer update in the comment section below.
Earlier the S&P 500 had dropped since I recommended to short at 2774 (the high that day was at 2774.86) on June 20 down to a low at 2691.99 on June 28.
I was pondering to recommend to close the short on July 3 and then again there was a good chance to close the short on July 5, but that was before the reaction to the start of the trade war was actually known. There remained a risk that the market strongly drops on Friday with the start of the trade war, which is why I decided to wait one more day to comment here.
I think that hoping that the S&P 500 is going to drop soon again is now starting to become a gamble, which is why I recommend to close the short until the close of Friday if you want to take profit. It could be that next week the markets drops like a stone, but this is not the current short-term trend.
I keep my short open, because this short is used as a hedge to protect my core long position I opened at 2580 on April 3.
I'm only going to close this short hedge from 2774 right before it would start to lose money once the S&P 500 moves back above 2768-2772.
My scenario was that the S&P 500 would gap up at the open and then decline for the rest of Monday (over in Europe the DAX already did this). But I also thought that the S&P 500 would stay below 2770 with that gap up. Instead the S&P 500 opened at 2768.51 and S&P 500 futures had already traded above 2774 before the open, which is why I closed my short hedge position at 2770 at today's open with at least a micro gain.
There is a chance for a high risk short here around 2776.
I expect a bounce higher today on June 26 (maybe until the end of June), but I don't expect this bounce to go back above 2774. Therefore I keep the short open.
If you don't want to risk giving up all your profits from the short I recommend to close the short this week. I'm only going to close my short if it reaches break even, because it mainly is a hedge against a potential crash.
1. ""S&P 500" had only a consolidation through time and not through price" - what is the difference between consolidation through time and through price?
2. "market might now finally start to move with the cycle again" - what is the cycle? how does the price & time consolidation indicate the cycle?
Regarding 2. Every time the price makes a new low or makes new high compared to recent price moves this starts a new cycle. The last cycle low was at the end of May, therefore a new cycle high was (is) overdue as compared to recent weeks if you compare the average time between recent cycle highs and lows. Instead of using the price directly I used as example the Fisher Transform makes it easier to see these points where the trend changed. I did not include all cycle changes, because that would be too confusing too look at.
I don't count those time spans and average them out, because cycles can quickly start to extend and get longer and longer or also shrink and get shorter and shorter. It's very dynamic. But based on recent history of the last weeks it was more likely that a cycle high was near. Until the price retests and fails again at breaking out above 2800 this new cycle high peak is not confirmed, though. Meaning there remains a chance of a move higher as of now. Only next week will tell.