Since Sep 2018, SPY’s 28-Day RSI has met resistance at the 63-66 zone, with prices subsequently pulling back between 6% and 20% in the past three occurrences, before continuing to trend higher.
Sep 20, 2018 Peak – 20% decline over 66 trading days
Apr 30, 2019 Peak – 7% decline over 23 trading days
Jul 29, 2019 Peak – 6% decline over 20 trading days
In each scenario, after the RSI first reached the 63-66 zone, SPY continued to gain between 1-2% over the next 15-17 trading days before taking a final turn downwards – often marked by a second consecutive RSI top in the 63-66 zone.
Fast forward to today…
The RSI has returned to the upper boundaries, reaching 66 on Nov 27, 2019, and has gained 1.5% over the past 14 trading days - last trading at $319.58 on Dec 18, 2019. Should the 15-17 day span between an RSI top and initiation of a pullback prove true again, that would imply a downturn between now and Monday (Dec 23, 2019).
The time window setup seems a little too perfect to be true, but the general setup remains valid, with SPY overbought and positioned for a pullback in the immediate to near future. I suspect SPY will reach 322-323 before turning down. I plan to get more conservative by reducing short-term holdings of growth stocks and increase cash reserves tomorrow, while seeking an entry point for AAPL Puts and TVIX (short-term only) to hedge / profit the potential downside.
* Bar pattern for Dec 23, 2019 and forward = one potential scenario
12/18/2019 – 11:05PM EST
Sep 20, 2018 Peak – 20% decline over 66 trading days
Apr 30, 2019 Peak – 7% decline over 23 trading days
Jul 29, 2019 Peak – 6% decline over 20 trading days
In each scenario, after the RSI first reached the 63-66 zone, SPY continued to gain between 1-2% over the next 15-17 trading days before taking a final turn downwards – often marked by a second consecutive RSI top in the 63-66 zone.
Fast forward to today…
The RSI has returned to the upper boundaries, reaching 66 on Nov 27, 2019, and has gained 1.5% over the past 14 trading days - last trading at $319.58 on Dec 18, 2019. Should the 15-17 day span between an RSI top and initiation of a pullback prove true again, that would imply a downturn between now and Monday (Dec 23, 2019).
The time window setup seems a little too perfect to be true, but the general setup remains valid, with SPY overbought and positioned for a pullback in the immediate to near future. I suspect SPY will reach 322-323 before turning down. I plan to get more conservative by reducing short-term holdings of growth stocks and increase cash reserves tomorrow, while seeking an entry point for AAPL Puts and TVIX (short-term only) to hedge / profit the potential downside.
* Bar pattern for Dec 23, 2019 and forward = one potential scenario
12/18/2019 – 11:05PM EST