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
The music will stop when the Fed Repo's do. I do not think it will slow down very much, if at all, despite all warnings.
Very good analysis. If things were not artificially inflated by Fed Reserve.....but "everything is fine".
"Trust them" LOL
One-World
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Thanks for sharing your thoughts and chart.
I, as other friends on SPY idea section all agree with you that a lot of stocks are over bought in SP500 section. Yet, while it is more reasonable to have a major pull back, I think the X'mas week may only have a small pullback as the 1st week in December because: 1) Fed is printing money and re-purchase like crazy; market goes up when $ de-values in such fast pace. 2) more investors may carry over their gain to 2020 (only assumption based on current number and discussion). 3) US-China deal and USMCA deal are both pushed forward so investors are complacent.
@jbird7839 - Hi Jbird, hope you see this post too.
If you also see the post-market value of SPY today, I truly have to say the game is more interesting now for the potential winner.
MoneyPatterns
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@piscitear, Hey piscitear...think I replied to the author instead of you. Just look above. Sorry about that.
Good analysis.
One-World
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@jbird7839, didn't refresh the page but kept writing. nvm, lol
AlexCar
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really nice job man. You a unique perspective and i'd agree with it.
I am watching Fear and Greed index. Today is 91. money.cnn.com/data/fear-and-greed/
We should see a pullback soon, but I don't think there will be any major selloff until after the Fed Repo liquidity stops.
newyorkfed.org/markets/domestic-market-operations/monetary-policy-implementation/repo-reverse-repo-agreements/repurchase-agreement-operational-details
$35 Billion tonight, again next Tuesday, again next Thursday, again Monday after and so on.....
Roughly $500 Billion will override all fundamental, rational, normalcy.
The music will stop when the Fed Repo's do. I do not think it will slow down very much, if at all, despite all warnings.
Very good analysis. If things were not artificially inflated by Fed Reserve.....but "everything is fine".
"Trust them" LOL