SPY Continues Trapping Bulls / Bears; Rally Traps Bears Next
Primary Chart: S&P 500 represented by
SPY
(SPDR S&P 500 ETF trust, an ETF traded on ARCA and NYSE)
SUMMARY
It is easy to come up with bearish stories about how price will run in a straight line to new lows. Perhaps that may happen this spring. But perhaps not. The crash-right-now scenario seems far too easy and predictable without sufficient pain (max pain theory) for bears and bulls alike.
Instead, price may continue to chop within its ever-tightening range. A few more traps and tricks may lie ahead before a major trend move can occur. The following SPY charts show a reasonable argument and analysis for higher SPY prices the coming few weeks. Keep in mind, this is a shorter-term view only lasting only 2-10 weeks. Whether all-time highs will be reached before new bear market lows are achieved seems unlikely, but markets can do whatever they want. It's helped me to realize that anything is always possible in markets no matter how irrational. And it doesn't make sense to spend a lot of time thinking about which will happen first: new all-time highs or new bear-market lows. Why? Because it doesn't matter and it probably can't be known with even the best Elliott-wave counts or the most extensive macro deep dives.
Turning to what the charts are showing us currently, one can see that US equity markets continue to trap bulls and bears in difficult whipsaws that defeat longer-term positioning in both directions. Bulls were trapped in late January 2023 and early February 2023 when SPY rallied convincingly above 410 (4100 SPX) to reach nearly 420 (4200 SPX). Many said that the lows were final and that the market was traveling back to new all-time highs. The macro and monetary-policy environment has suggested caution as to forming optimistic, inflexible bullish biases about reaching new all-time highs with a new uptrend. In any event, few strategies have worked in this price environment. One famous trader discussed in Jack Schwager's Market Wizards series said recently he was down somewhat this year on the few positions he has taken, and that this market has been extremely difficult. In general, from his public statements, one can glean this particular "market wizard" has been staying largely away from investing and trading (a trading decision in itself which requires great discipline) given that his breakout-trading strategy does not work in this type of market.
Given the whipsaw and chop on a daily and weekly basis, shorter-term strategies between major levels may have the most success. As one veteran trader once said, trading from the edge in chop will give you an edge. The edge has been difficult to define, however. For example, in early February 2023, SPY / SPX pushed deviously above December 2022 highs. The December 2022 highs appeared to be the chop-range's edge. But price pushed above that in a tricky way that trapped many bulls. Bears have had their share of pain too, as price has broken below key levels only to reverse higher. For instance, in December 2022, after the FOMC presser that killed the rally, price fell into the 375-385 SPY range only to fail to follow through to the downside as many market players may have expected. Similar shorter-time frame failed breakdowns have also appeared on January 19, February 9-10 and February 22, 2023.
The anchored VWAPs confirm what might be inferred from the choppy price action alone. Supplementary Chart A below shows several key VWAPs anchored to major turning points since the all-time high in SPY / SPX on January 4, 2022. Notice how they show price compression as VWAPs from major highs drift downward and VWAPs from major lows drift upward with price caught in the middle except for the trappy breals above and below that failed.
Supplementary Chart A.1
In a way, the VWAP from the October 2022 low and the VWAP from the January 2022 high have together formed the boundary for price action since the October 2022 lows. The next chart, Supplementary Chart A.2, shows just these two anchored VWAPs to allow a better visualization of this phenomenon (compression):
Supplementary Chart A.2
Next, consider the Fibonacci levels shown on Supplementary Chart C below. This shows where price could rally in the coming days and weeks. The shorter-term Fibonacci retracements were drawn from the intraday low on Friday, March 9, 2023, which may not be the low of this particular swing. If this low changes, SquishTrade may likely provide an update on this.
Supplementary Chart B
Considering Supplementary Chart B further, the most reasonable targets are also the closest resistance areas under Fibonacci analysis. The most obvious target is the $398.48 Fibonacci level, which is the .382 retracement of the entire bear market decline (retracements drawn from the all-time high in January 2022 to the current bear-market low in October 2022). This level is approximately 4000 on SPX, a key psychological level and an important positioning level. None of the upside shown on any of SquishTrade's charts can occur without a decisive recovery above this area.
Assuming the 390 SPY area holds as support next week, the key Fibonacci areas to watch as targets and resistance are the 50% and 61.8% retracements of the recent swing high to low (starting at February 2, 2023). This gives us conservative targets for a rally of $401.14, $404.42, and $407.70. If a lower low is made in the next few days on this decline, then these Fibonacci retracements will be revised somewhat lower.
The next target is the VWAP from the all-time high at $409.25 today. This shows a gentle decline over time, so in the coming days it may be marginally lower or higher depending on price direction. Reclaiming this anchored VWAP would require a substantial move in the face of hostile macro and rate environment.
So SquishTrade will refrain from extensive discussion of targets above this January 2022 VWAP at 409.25 (4100 SPX) and mention them merely as possibilities to watch. In other words, these targets remain inchoate and tenuous until lower levels reclaim first. In any case, the Fibonacci analysis on Supplementary Chart B above reveals confluence around the August 2022 peaks. This shows $429.61 SPY as a major Fibonacci level, i.e., the .618 retracement of the entire bear market high to low range. This coincides with the August 2022 peaks at $431 as well as the 1.272 external retracement (or extension) at $425.87.
SquishTrade's analysis does not assert definitively that this $425-$431 area will be reached as that would be premature. No confidence on a technical basis can exist as to whether can zone will be reached until price can reclaim critical lower levels first. But it seems plausible technically speaking (and setting aside macro biases for purposes of this analysis). That would cause a great deal of market pain and suck in a lot of investors and bulls into the chase of a new bull / primary uptrend. For now, this post's analysis is limited to a call for SPY to move higher into the more conservative targets discussed above ($398, $401, 404, 407, $409). Again, these lower price levels must be reclaimed first before considering any SPY / SPX targets above $410 SPY / 4100 SPX. And this author prefers to take price action a bit more granularly, i.e., level by level, to avoid forming rigid biases that work against one's ability to read price action objectively, and to resist getting too far ahead the present action and the charts as they appear here and now, which provide valuable information daily that is better than any forecaster on Wall Street can provide.
Lastly, consider the final two supplementary charts below showing (1) gap fill areas just above $420 (SPX 4200) and (2) the measured-move from October 13, 2022. This could result in a move to $437.02. This would seem outrageous and irrational given the macro environment, right? But how many times this year have equities acted outrageous and irrational? Perhaps even this technical area can be reached before the great slide begins in earnest. Flows from positioning (CTAs) and options can be affected by a number of things that don't involve the terminal rate or inflation prints. In any event, look at how price is finding support at the $389-$391 area (shown by a blue rectangle on the Primary Chart and the supplementary charts. As long as this holds, price can move higher into April 2023.
Supplementary Chart C
Supplementary Chart D
________________________________________
Author's Comment: Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate (respectfully presented) in the comment section. Shared charts are especially helpful to support any opposing or alternative view. This article is intended to present an unbiased, technical view of the security or tradable risk asset discussed.
Please note further that this technical-analysis viewpoint is short-term in nature. This is not a trade recommendation but a technical-analysis overview and commentary with levels to watch for the near term. This technical-analysis viewpoint could change at a moment's notice should price move beyond a level of invalidation. Further, proper risk-management techniques are vital to trading success. And countertrend or mean-reversion trading, e.g., trading a rally in a bear market, is lower probability and is tricky and challenging even for the most experienced traders.
DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified financial adviser or other investment / financial professional before entering any trade, investment or other transaction.
SPY
(SPDR S&P 500 ETF trust, an ETF traded on ARCA and NYSE) SUMMARY
- US equity markets may continue to trap bears and bulls alike in the coming weeks and months on the short-term to intermediate-term timeframes.
- SPY / SPX may rally in the coming days and weeks into April 2023. Such a rally makes sense from a technical viewpoint but would be considered irrational given the broader macro environment. But consider how many irrational and unexpected price swings have occurred since this bear-market began in early 2022.
- The price range in SPY has been compressing over time since the October 2022 lows. The anchored VWAPs (discussed in detail below) confirm this compression and tightening of the range.
- Price is finding support at the 3900 SPX / 390 SPY level. If this does not hold as support (or if it breaks and does not quickly reclaim), the entire thesis of a rally is invalidated.
- Conservative targets begin at $398-$399 ($4000 SPX). The list of targets appear below:
1. 398.48 SPY / 4000 SPX (most conservative)
2. 401.14 SPY (conservative)
3. 404.42 SPY (conservative)
4. 407.70 SPY (moderately aggressive)
5. 409.25 SPY (moderately aggressive)
It is easy to come up with bearish stories about how price will run in a straight line to new lows. Perhaps that may happen this spring. But perhaps not. The crash-right-now scenario seems far too easy and predictable without sufficient pain (max pain theory) for bears and bulls alike.
Instead, price may continue to chop within its ever-tightening range. A few more traps and tricks may lie ahead before a major trend move can occur. The following SPY charts show a reasonable argument and analysis for higher SPY prices the coming few weeks. Keep in mind, this is a shorter-term view only lasting only 2-10 weeks. Whether all-time highs will be reached before new bear market lows are achieved seems unlikely, but markets can do whatever they want. It's helped me to realize that anything is always possible in markets no matter how irrational. And it doesn't make sense to spend a lot of time thinking about which will happen first: new all-time highs or new bear-market lows. Why? Because it doesn't matter and it probably can't be known with even the best Elliott-wave counts or the most extensive macro deep dives.
Turning to what the charts are showing us currently, one can see that US equity markets continue to trap bulls and bears in difficult whipsaws that defeat longer-term positioning in both directions. Bulls were trapped in late January 2023 and early February 2023 when SPY rallied convincingly above 410 (4100 SPX) to reach nearly 420 (4200 SPX). Many said that the lows were final and that the market was traveling back to new all-time highs. The macro and monetary-policy environment has suggested caution as to forming optimistic, inflexible bullish biases about reaching new all-time highs with a new uptrend. In any event, few strategies have worked in this price environment. One famous trader discussed in Jack Schwager's Market Wizards series said recently he was down somewhat this year on the few positions he has taken, and that this market has been extremely difficult. In general, from his public statements, one can glean this particular "market wizard" has been staying largely away from investing and trading (a trading decision in itself which requires great discipline) given that his breakout-trading strategy does not work in this type of market.
Given the whipsaw and chop on a daily and weekly basis, shorter-term strategies between major levels may have the most success. As one veteran trader once said, trading from the edge in chop will give you an edge. The edge has been difficult to define, however. For example, in early February 2023, SPY / SPX pushed deviously above December 2022 highs. The December 2022 highs appeared to be the chop-range's edge. But price pushed above that in a tricky way that trapped many bulls. Bears have had their share of pain too, as price has broken below key levels only to reverse higher. For instance, in December 2022, after the FOMC presser that killed the rally, price fell into the 375-385 SPY range only to fail to follow through to the downside as many market players may have expected. Similar shorter-time frame failed breakdowns have also appeared on January 19, February 9-10 and February 22, 2023.
The anchored VWAPs confirm what might be inferred from the choppy price action alone. Supplementary Chart A below shows several key VWAPs anchored to major turning points since the all-time high in SPY / SPX on January 4, 2022. Notice how they show price compression as VWAPs from major highs drift downward and VWAPs from major lows drift upward with price caught in the middle except for the trappy breals above and below that failed.
Supplementary Chart A.1
In a way, the VWAP from the October 2022 low and the VWAP from the January 2022 high have together formed the boundary for price action since the October 2022 lows. The next chart, Supplementary Chart A.2, shows just these two anchored VWAPs to allow a better visualization of this phenomenon (compression):
Supplementary Chart A.2
Next, consider the Fibonacci levels shown on Supplementary Chart C below. This shows where price could rally in the coming days and weeks. The shorter-term Fibonacci retracements were drawn from the intraday low on Friday, March 9, 2023, which may not be the low of this particular swing. If this low changes, SquishTrade may likely provide an update on this.
Supplementary Chart B
Considering Supplementary Chart B further, the most reasonable targets are also the closest resistance areas under Fibonacci analysis. The most obvious target is the $398.48 Fibonacci level, which is the .382 retracement of the entire bear market decline (retracements drawn from the all-time high in January 2022 to the current bear-market low in October 2022). This level is approximately 4000 on SPX, a key psychological level and an important positioning level. None of the upside shown on any of SquishTrade's charts can occur without a decisive recovery above this area.
Assuming the 390 SPY area holds as support next week, the key Fibonacci areas to watch as targets and resistance are the 50% and 61.8% retracements of the recent swing high to low (starting at February 2, 2023). This gives us conservative targets for a rally of $401.14, $404.42, and $407.70. If a lower low is made in the next few days on this decline, then these Fibonacci retracements will be revised somewhat lower.
The next target is the VWAP from the all-time high at $409.25 today. This shows a gentle decline over time, so in the coming days it may be marginally lower or higher depending on price direction. Reclaiming this anchored VWAP would require a substantial move in the face of hostile macro and rate environment.
So SquishTrade will refrain from extensive discussion of targets above this January 2022 VWAP at 409.25 (4100 SPX) and mention them merely as possibilities to watch. In other words, these targets remain inchoate and tenuous until lower levels reclaim first. In any case, the Fibonacci analysis on Supplementary Chart B above reveals confluence around the August 2022 peaks. This shows $429.61 SPY as a major Fibonacci level, i.e., the .618 retracement of the entire bear market high to low range. This coincides with the August 2022 peaks at $431 as well as the 1.272 external retracement (or extension) at $425.87.
SquishTrade's analysis does not assert definitively that this $425-$431 area will be reached as that would be premature. No confidence on a technical basis can exist as to whether can zone will be reached until price can reclaim critical lower levels first. But it seems plausible technically speaking (and setting aside macro biases for purposes of this analysis). That would cause a great deal of market pain and suck in a lot of investors and bulls into the chase of a new bull / primary uptrend. For now, this post's analysis is limited to a call for SPY to move higher into the more conservative targets discussed above ($398, $401, 404, 407, $409). Again, these lower price levels must be reclaimed first before considering any SPY / SPX targets above $410 SPY / 4100 SPX. And this author prefers to take price action a bit more granularly, i.e., level by level, to avoid forming rigid biases that work against one's ability to read price action objectively, and to resist getting too far ahead the present action and the charts as they appear here and now, which provide valuable information daily that is better than any forecaster on Wall Street can provide.
Lastly, consider the final two supplementary charts below showing (1) gap fill areas just above $420 (SPX 4200) and (2) the measured-move from October 13, 2022. This could result in a move to $437.02. This would seem outrageous and irrational given the macro environment, right? But how many times this year have equities acted outrageous and irrational? Perhaps even this technical area can be reached before the great slide begins in earnest. Flows from positioning (CTAs) and options can be affected by a number of things that don't involve the terminal rate or inflation prints. In any event, look at how price is finding support at the $389-$391 area (shown by a blue rectangle on the Primary Chart and the supplementary charts. As long as this holds, price can move higher into April 2023.
Supplementary Chart C
Supplementary Chart D
________________________________________
Author's Comment: Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate (respectfully presented) in the comment section. Shared charts are especially helpful to support any opposing or alternative view. This article is intended to present an unbiased, technical view of the security or tradable risk asset discussed.
Please note further that this technical-analysis viewpoint is short-term in nature. This is not a trade recommendation but a technical-analysis overview and commentary with levels to watch for the near term. This technical-analysis viewpoint could change at a moment's notice should price move beyond a level of invalidation. Further, proper risk-management techniques are vital to trading success. And countertrend or mean-reversion trading, e.g., trading a rally in a bear market, is lower probability and is tricky and challenging even for the most experienced traders.
DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified financial adviser or other investment / financial professional before entering any trade, investment or other transaction.
Trade closed: stop reached:
This trade may be reopened in a few days *provided* SPY 390 / SPX 3900 is reclaimed. For now, price action is looking bearish into March 17 OPEX. The close on the weekly candle will be ugly.
If one reads about the best traders (called market wizards) in Jack Schwager's books, they all are experts at cutting losses when wrong. So this trade idea is cut today.
And if this is just a fake out, the trade idea will be re-activated.
Here is a view of the weekly candle on the Ichimoku Cloud chart. This is why the idea has been cut. It is important to know exactly when / how one's thesis will be invalidated, and this invalidates it for now. Don't fight this unless that TL is reclaimed and unless 3900 SPX is reclaimed.
If one reads about the best traders (called market wizards) in Jack Schwager's books, they all are experts at cutting losses when wrong. So this trade idea is cut today.
And if this is just a fake out, the trade idea will be re-activated.
Here is a view of the weekly candle on the Ichimoku Cloud chart. This is why the idea has been cut. It is important to know exactly when / how one's thesis will be invalidated, and this invalidates it for now. Don't fight this unless that TL is reclaimed and unless 3900 SPX is reclaimed.
Trade active:
The last update closed this idea b/c price broke below 3900 SPX / 390 SPY. That was the validation level (or invalidation level on a break) for this short-term idea. But the last update stated that if price reclaimed 3900 SPX / 390 SPY decisively, then the idea would be reactivated.
However, caution is now warranted. See the weekly close above in the March 10 update (on Ichimoku Cloud chart) that fell below the down TL on SPX. The weekly cloud also looks bearish still.
However, using 2000-2002 as a template, it may still be possible that price chops a bit more, and even pushes to the levels discussed in this post before a dramatic selloff to new lows occurs. See the 2000-2002 SPX chart with annotations below, which accompanied a prior SPX post from January 26, 2023:
This doesn't have to repeat, though it shows well what is possible in a bear market and shows what can happen around a trendline. Look how many traps occurred before the trip to new lows!! That's why SquishTrade's view is for more chop ahead until UE claims start to rise substantially
However, caution is now warranted. See the weekly close above in the March 10 update (on Ichimoku Cloud chart) that fell below the down TL on SPX. The weekly cloud also looks bearish still.
However, using 2000-2002 as a template, it may still be possible that price chops a bit more, and even pushes to the levels discussed in this post before a dramatic selloff to new lows occurs. See the 2000-2002 SPX chart with annotations below, which accompanied a prior SPX post from January 26, 2023:
This doesn't have to repeat, though it shows well what is possible in a bear market and shows what can happen around a trendline. Look how many traps occurred before the trip to new lows!! That's why SquishTrade's view is for more chop ahead until UE claims start to rise substantially
Comment:
One more point that is key—3900 SPX / 390 SPY remains a key level. This level could *easily* break again to the downside as market vol stays high around the SVB bank failure.
If SPY breaks back below 390 before clipping 400, and then if it makes a new low around 380 / 375 with positive divergence on RSI or other momentum indicators, then reclaims 390, then it's possible the targets at 398-405 can still clip despite a second breakdown. Bottom line: This is a very tricky market that will wipe out positions. Think of all the SPY / SPX bulls and bullish trades that were wiped out Thursday and Friday last week. And now, think of all the bears (esp. those w/ leverage) that may be wiped out on Monday on bailout of depositors, as ES futures are already up nearly 2%.
If SPY breaks back below 390 before clipping 400, and then if it makes a new low around 380 / 375 with positive divergence on RSI or other momentum indicators, then reclaims 390, then it's possible the targets at 398-405 can still clip despite a second breakdown. Bottom line: This is a very tricky market that will wipe out positions. Think of all the SPY / SPX bulls and bullish trades that were wiped out Thursday and Friday last week. And now, think of all the bears (esp. those w/ leverage) that may be wiped out on Monday on bailout of depositors, as ES futures are already up nearly 2%.
Comment:
Chopping at the down TL from the ATH.
Comment:
SquishTrade wants to reiterate the longer-term bearish view described over the past several quarters. The most recent iteration of this view was in this post from January 26, 2023:
This current post was for a short-term relief rally. News catalysts around banking failures have caused SPY to break below important levels around 390 (SPX 3900). But price has not crashed straight to lows.
The longer-term bearish view has been bolstered by the events of this past week. However, SPY / SPX may continue to chop around the down TL from the all-time high.
IV is very high. This is seen in measures like VIX and Skew. VIX hit an intraday high of 30.81 on 3/13 but closed off the highs at 26.51. With VIX this high, however, this implies that SPY needs to fall substantially and quickly to realize the IV implied by the VIX and other measures. Otherwise, VIX must fall if the moves don't materialize. One or the other will happen soon.
With OPEX just around the corner on Friday this week, a relief rally seems likely and 400 / SPX 4000-4015 could still clip. Perhaps a down move occurs first, so caution is warranted. CPI on 3/14 may push the SPY to a new marginal low, for example, around 377-380, with bullish divergence. This could set up a relief rally as puts expire into March 17 OPEX.
The upside targets in this post should be viewed as a short-term relief rally that may serve as a shorting opportunity for bearish bets. But even if a marginal new low occurs on 3/14 or later this week, US equity markets may continue to trap bears and bulls alike in the coming weeks.
But the longer-term view remains as stated in the linked post about the SPX's triangle breakout. Price broke out of the triangle to the upside as forecasted, and has now fallen back to retest the triangle's upper edge, which is the down TL from the ATH. Price could easily follow the pattern from 2000-2002 as posted in the longer-term view's updates, which show an upside breakout above the down TL, a retest and chop, followed by another swing high, followed by a trend leg down to new lows.
This current post was for a short-term relief rally. News catalysts around banking failures have caused SPY to break below important levels around 390 (SPX 3900). But price has not crashed straight to lows.
The longer-term bearish view has been bolstered by the events of this past week. However, SPY / SPX may continue to chop around the down TL from the all-time high.
IV is very high. This is seen in measures like VIX and Skew. VIX hit an intraday high of 30.81 on 3/13 but closed off the highs at 26.51. With VIX this high, however, this implies that SPY needs to fall substantially and quickly to realize the IV implied by the VIX and other measures. Otherwise, VIX must fall if the moves don't materialize. One or the other will happen soon.
With OPEX just around the corner on Friday this week, a relief rally seems likely and 400 / SPX 4000-4015 could still clip. Perhaps a down move occurs first, so caution is warranted. CPI on 3/14 may push the SPY to a new marginal low, for example, around 377-380, with bullish divergence. This could set up a relief rally as puts expire into March 17 OPEX.
The upside targets in this post should be viewed as a short-term relief rally that may serve as a shorting opportunity for bearish bets. But even if a marginal new low occurs on 3/14 or later this week, US equity markets may continue to trap bears and bulls alike in the coming weeks.
But the longer-term view remains as stated in the linked post about the SPX's triangle breakout. Price broke out of the triangle to the upside as forecasted, and has now fallen back to retest the triangle's upper edge, which is the down TL from the ATH. Price could easily follow the pattern from 2000-2002 as posted in the longer-term view's updates, which show an upside breakout above the down TL, a retest and chop, followed by another swing high, followed by a trend leg down to new lows.
Comment:
SPY closed above 390 decisively. With this market, anything is possible. But a move higher—to continue the chop—makes sense here. As mentioned above several times, this is not a long-term or even intermediate-term bullish view. This is a short-term bullish view for a relief bounce, short covering rally. And from the perspective of a daily chart (zooming out a bit), this rally will just look like continued chop with perhaps a downward bias as measured from the last swing high on Feb. 2.
@DaddySawbucks and other commenters have expressed bearish outlooks in the comments. Perhaps we're discussing different TFs, but I am completely in agreement with them on a longer-term bearish view. That longer term bearish view is likely what is making this market so unpredictable and choppy right now.
OPEX continues to approach on Friday, which is called "triple witching" because monthly and quarterly options expire. www.investopedia.com...iplewitchinghour.asp
This is leading to more and more of the massive OTM put OI declining in value due to the passage of time (charm). As time passes, deltas for OTM puts fall. As those deltas fall, dealers positive delta exposure (from being on the opposite side of the trade from the market by holding short puts) falls as well, and therefore dealers hedges (short futures / short stock) must be bought to cover. This adds buying pressure to the market in general.
@DaddySawbucks and other commenters have expressed bearish outlooks in the comments. Perhaps we're discussing different TFs, but I am completely in agreement with them on a longer-term bearish view. That longer term bearish view is likely what is making this market so unpredictable and choppy right now.
OPEX continues to approach on Friday, which is called "triple witching" because monthly and quarterly options expire. www.investopedia.com...iplewitchinghour.asp
This is leading to more and more of the massive OTM put OI declining in value due to the passage of time (charm). As time passes, deltas for OTM puts fall. As those deltas fall, dealers positive delta exposure (from being on the opposite side of the trade from the market by holding short puts) falls as well, and therefore dealers hedges (short futures / short stock) must be bought to cover. This adds buying pressure to the market in general.
Comment:
The MOVE index tracks rate volatility. Look at the monthly chart of the MOVE index below. It's at the same level as the 2007-2009 GFC. It hasn't been this high since 2008-2009. For this reason, SquishTrade recommends extreme caution both with shorts and longs. Shorts can get crushed in minutes if IV (VIX) or fixed-strike vol falls dramatically. Longs can as well if more credit stress increases selling.
It still makes sense to me to see 4000 SPX before lower given the chop, given technicals, and given vanna and charm into triple witching opex. But that doesn't mean my confidence is high or that this should be traded. It's prudent to stay out of equity markets at the moment unless you really have an edge for this type of price action (who does really)
It still makes sense to me to see 4000 SPX before lower given the chop, given technicals, and given vanna and charm into triple witching opex. But that doesn't mean my confidence is high or that this should be traded. It's prudent to stay out of equity markets at the moment unless you really have an edge for this type of price action (who does really)
Comment:
Comment:
SPX has held 3900. SPY has held 389.99 (390) on a daily and weekly close. This post will remain open. The conservative targets remain viable, as well as the aggressive ones. SPY can reach 400, maybe 405 in the short term (1-3 weeks). Before March 31, 2023, which is a quarterly opex date, SPX 4065 is the short call strike of the JPM quarterly collar. Likely resistance at this level until end of March. Of course, SPX 4000 / SPY 400 is key resistance too.
Comment:
The most conservative target at 398 SPY / 3995 SPX has been briefly hit intraday. But SPY / SPX is right at resistance in the very short-term. Tomorrow is FOMC and VIX-expiration. Many savvy traders go completely flat until after the FOMC rate decision. That seems wise. Price could whipsaw dramatically higher and lower (as it has at previous FOMC pressers in the past year), stopping out leveraged bulls and leveraged bears trying to gamble on the decision.
Broader picture comments on this short-term SPX view:
The idea is succeeding to some extent along the hypothesized path. But it has not been easy for traders—and that is the nature of choppy, whipsawing action: it's highly uncertain and unpredictable. In fact, this idea was even "stopped / closed" because of SPX's sharp move below 3900 on bank failures (SIVB, SVB, SI, Signature) and bank stresses (CS, FRC). 3900 had appeared to be a critical level that might hold in the short term, but it didn't, and price moved into the 3800-50 range in early March, albeit briefly.
Some think that "flexibility" means weakness and lack of confidence. Reading about market wizards teaches one otherwise. It's absolutely vital to stop out a bullish idea like this one when an invalidation levels (and one should definitely always have one) are broken to the downside. This keeps losses small. And avoids cutting losses at 3850, or 3800 or even lower. But many of the great traders also are not afraid to reenter a trade when the key invalidation level is reclaimed and the idea is validated once again.
Broader picture comments on this short-term SPX view:
The idea is succeeding to some extent along the hypothesized path. But it has not been easy for traders—and that is the nature of choppy, whipsawing action: it's highly uncertain and unpredictable. In fact, this idea was even "stopped / closed" because of SPX's sharp move below 3900 on bank failures (SIVB, SVB, SI, Signature) and bank stresses (CS, FRC). 3900 had appeared to be a critical level that might hold in the short term, but it didn't, and price moved into the 3800-50 range in early March, albeit briefly.
Some think that "flexibility" means weakness and lack of confidence. Reading about market wizards teaches one otherwise. It's absolutely vital to stop out a bullish idea like this one when an invalidation levels (and one should definitely always have one) are broken to the downside. This keeps losses small. And avoids cutting losses at 3850, or 3800 or even lower. But many of the great traders also are not afraid to reenter a trade when the key invalidation level is reclaimed and the idea is validated once again.
Comment:
One final note: The reclaiming of 3900 SPX / 390 SPY was short-term bullish. That is a key level to watch into the FOMC presser. This could be downside support, we'll see. 4065 SPX / 405 SPY seems to be major resistance into quarterly OPEX 3/31/
Comment:
Probability of a 25 bps hike tomorrow is over 80%. Powell probably won't like the fact that ARKK and meme baskets have been leading this little charge—and leading the market in general.
But any hint of a pause, or a poorly worded comment, or a misinterpreted comment, and the market rips higher still. We all know what Powell *should* do (raise 25 bps and say the hikes are likely to continue as long as inflation persists, and that startup / tech banks are not as important as price stability). But that's not always what happens. Since the liquidity scare over the past few weeks, the uncertainty around this decision, and how it's interpreted is exceedingly high.
But any hint of a pause, or a poorly worded comment, or a misinterpreted comment, and the market rips higher still. We all know what Powell *should* do (raise 25 bps and say the hikes are likely to continue as long as inflation persists, and that startup / tech banks are not as important as price stability). But that's not always what happens. Since the liquidity scare over the past few weeks, the uncertainty around this decision, and how it's interpreted is exceedingly high.
Trade closed: target reached
Trade closed: target reached:
When banks started failing a couple weeks ago, it was hard to see anything but a straight line to lows. But SPX wanted to chop some more directional traders. This is a tough year, humbling for all of us.
In any case, SPY reached both the most conservative target and the conservative target.
1. 398.48 SPY / 4000 SPX (most conservative)
2. 401.14 SPY (conservative)
SPY is reacting lower after a few nasty whipsaws. SquishTrade wants to wait a few days to reset bias. Right now, price seems like it could be weak in reaction to FOMC, but the trend is difficult to ascertain yet. Patience here, and working to reset bias as price settles down after this major catalyst.
In any case, SPY reached both the most conservative target and the conservative target.
1. 398.48 SPY / 4000 SPX (most conservative)
2. 401.14 SPY (conservative)
SPY is reacting lower after a few nasty whipsaws. SquishTrade wants to wait a few days to reset bias. Right now, price seems like it could be weak in reaction to FOMC, but the trend is difficult to ascertain yet. Patience here, and working to reset bias as price settles down after this major catalyst.
Comment:
The hypothesized price path for SPX, shown by the magenta arrow in the primary chart above came fairly close to capturing the choppy uptrend over the past month. The lows were a bit sharper and deeper than expected. But the original March 9th analysis suggesting chop along with somewhat higher prices, though, has proved to be the case.
Comment:
A point in favor of the bears arises from the recent performance of the the Russell 2000 / $IWM! Equities can be in a strong bull without broad participation in all the major indices. Here is the post:
Comment:
This post included a weekly Ichimoku Cloud chart for SPY. Here is that same chart updated. Notice how price is right against the SSB line, i.e., the line at the top of a bearish cloud:
SquishTrade
Position size is important when attempting to catch a falling market at a major, critical support level. Right now, the level is looking a bit weaker than anticipated yesterday.
We'll see what happens into next week. Like all technical analysis and directional views, one must hold it loosely and be prepared for the market to show a different path and flexibly adopt that path when it's clear.