S&P 500: Potential peak reached

SP:SPX   S&P 500 Index
842 6
The Fisher Transform signals a trend change as the slope has turned bearish and the price of the "S&P 500" yesterday closed below the Hull moving average , which is also bearish .

While I was starting to lean bullish 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 futures 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
Comment: The reason why I wrote short entry at 2780-2795 is that the actual move lower has already been almost fully priced in. Because the actual peak happened on June 12 or June 13. I was waiting for more evidence to see it get confirmed as the market was very close to a breakout higher.

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:

Trade active: Short opened at 2779.5 today.

If Monday gaps up above 2780 I'm going to add a second short position next week.
Comment: Friday's short from 2779.5 is in profit this Monday after the S&P 500 declined to a low of 2757.12 so far today.

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.
Trade closed: target reached: Short closed in profit at 2769.5

The S&P 500 already moved higher above 2771 since then. The open gap is located around 2776.
Trade active: Opened a new short at 2771 after the S&P 500 failed to move higher towards 2775 (intra-day high so far was 2773.92).
Trade closed manually: The "buy the dip" crowd is back once again. The S&P 500 didn't decline further than 2766.87 in the second down move today.

Closed my short with a minor loss at 2772.
Comment: Ouch :/

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.
Trade active: I went short at 2774 today, after the S&P 500 failed to move above 2775 so far this Wednesday. There are currently 2.5 hours left until the close.

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.
Comment: I had expected yesterday at the close that today on Friday the S&P 500 might bounce higher. This happened so far with the open far above yesterday's close ( close yesterday 2749.76 vs open today 2760.79). But I also think that the price won't go back above my short entry at 2774 and here is why:

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.
Comment: I expect a bounce higher today on June 26 (lasting maybe until the end of June up to July 6), but I don't expect this bounce to move the S&P 500 back above 2774. Therefore I keep the short open.

P.S. I wrote a longer update in the comment section below.
Comment: The pain level for this short is increasing. The S&P 500 has been moving higher since I recommended to go long on July 3.

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.
Trade closed manually: Wow, these bulls are brutal!

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.
Comment: It looks like the bears are fading the open while bulls are taking profit.

There is a chance for a high risk short here around 2776.
Nice Job Chart Art ....!! Thumb up .....! Regards
The short from 2774 is a few days later nicely in profit with the S&P 500 dropping yesterday on Monday, June 25 down to 2717.07

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.

Can you please elaborate the following 2 statements?

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?
ChartArt ltiftv
@ltiftv, Regarding 1. This is something I learned the hard way. Markets can have a consolidation either by moving lower - or by staying sideways in a range for a above average time. A very good example of this is the price trend which occured in early 2017 between January 4 and January 23. Instead of moving lower the price moved sideways for such a long period of time that the move lower was instead overcome by staying choppy flat.

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.
+1 Reply
ChartArt ChartArt
I made an error in coloring the last line 'green' instead of 'red' (the potential cycle peak).
ltiftv ChartArt
@ChartArt, Excellent! Thank you for taking the time to explain.
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