Quite the volatile week we had. I expect the same going into next week.
This volatility has been crazy, though. The intraday moves SPY has been seeing are nuts. Great for day traders but not ideal for swing traders. In fact, I am currently not in any swings except maintaining a short position (via SDS) on SPY and QQQ (Via SQQQ), because I am confident of SPY’s fall below 400 and QQQ’s fall below 300. But I will let you know at the end some stocks I am looking at for upcoming swing situations below. First let’s go over SPY.
Some Adjustments:
Just a disclaimer, this section is just some technical discussions about my math and my process in order to promote transparency on my process and analysis. It doesn’t add anything to my analysis for Monday/next week, so feel free to skip this part!
Because of this crazy volatility, I have had to make some adjustments to my predictive models on SPY. It has been consistently under-estimating the range and I have seen consistent break outs (usually to the bottom) of the ranges which leaves me somewhat irritated because I like having an intra-day trading range to operate within. So this week, I have been working on adjusting the data for SPY and trying to correct for the volatility so that the model actually gives me a range that SPY WILL operate in and STAY in. I actually was successful in being able to come up with just such a predictive model! YAY!
Reliability is around 98% over back testing the past 3 weeks of data. The times it did break out of the range, it was a break out to the bottom, but for the most part the stock stuck to this range 98% of the time (note, I am confined to the time limit of back testing because this volatility is relatively new).
I also re-adjusted my time series model for SPY. According to that we really should have been hitting 400 last week, and we have not. So, kind of riskily, I have adjusted it for the past year of data. For most of this data, we have been in more of a downtrend that an up-trend. Thus, this is simply measuring the extent that SPY is declining and attempts to make time guestimates based on the current rate of decline. It is NOT useful to predict a bottom or a “natural range” like a full time series model will, but I am more interested in measuring reasonable rates of decline on SPY to see when we can somewhat expect to see the levels that I have targeted based on my full time series model. Hopefully this makes sense.
Okay, let’s apply these theories to practice!
Monday Range:
Predicted Monday Range is: 402 – 417
High: Looking for a high around 414 – 415
Low: Looking for a low of around the 405 range.
Bullish Break: 414 (the level the stock needs to break to commit, at least intra-day, to bullish sentiment)
Bearish Break: 407 (the level the stock needs to break to commit, at least intra-day, to bearish sentiment)
Time series model:
Based on this revised one where its measuring SPY’s rate of decline, the range for this week would be around 385 to 405.
I am anticipating a hard bounce once SPY finally makes it to the 300s. So, I would really like to see this come true, we hit the 300s this week in anticipation of a bounce, because SPY is really trailing on the oversold area right now, so we might as well just touch that area and then bounce to stabilize. But I guess we will see.
One thing I have noticed about this model is it tends to over-estimate the lows, but the higher end of the range actually has been consistently on point as a low for the week. For example, last week the higher end of the range was 412 and we indeed hit 412. This week, the higher end of the range is 405 so we can anticipate at least testing 405 (I am assuming its going to be lower though, let’s be real haha).
Technicals
SDS looks like a cup and handle and an inverse head and shoulders that is about to break out! SO this is good for those in SDS or who are short on SPY.
SPY looks like it is doing a trible top on the 1 hour chart and on the 4 hour chart. This is fantastic because if you remember reading my little study thing, triple tops on SPY on the 1 hour chart were right 100% of the time haha, so let us HOPE that this holds true here!
I don’t like where the Z Score is sitting right now on SPY, but its not unheard of for SPY to drop much much lower than where it sits now in terms of its SD from its mean. The last major sell off brought it down to -3 SDs away from its mean and we still have a ways to go before we get there, so, its not imminently prohibitive, I just am not happy about it. But who is happy about anything these days. SPY currently is about -1.8 SDs away from its mean, a drop to -2.5 would be a price of around 399 an da drop to - 3 would be a price of 391. The 390s is where I am looking for a bounce if it happens this week.
What about futures?
When futures opens, I can get a great sense of where SPY will open at and be able to cross compare to my predictions here. I will run the analysis tonight, if its anything overly interesting I will share it, but I think it really doesn’t matter at this point. We know that SPY is going to be volatile and we know where SPY will end up sooner or later, so its less relevant I think.
But if I run the numbers and it says something nuts like “Its going open at 400” then for sure I will update!
Other stocks on my watch list this week:
GRMN - for short entry
RTX - for long entry
XBI - to play bounce, but will likely follow SPY and drop to the low 60s or high 50s and I will be jumping in for a bounce along with SPY
BA - for another long entry, again, for a bounce after another drop
Anyway, thanks for reading and take care!
Trade safe tomorrow!
This volatility has been crazy, though. The intraday moves SPY has been seeing are nuts. Great for day traders but not ideal for swing traders. In fact, I am currently not in any swings except maintaining a short position (via SDS) on SPY and QQQ (Via SQQQ), because I am confident of SPY’s fall below 400 and QQQ’s fall below 300. But I will let you know at the end some stocks I am looking at for upcoming swing situations below. First let’s go over SPY.
Some Adjustments:
Just a disclaimer, this section is just some technical discussions about my math and my process in order to promote transparency on my process and analysis. It doesn’t add anything to my analysis for Monday/next week, so feel free to skip this part!
Because of this crazy volatility, I have had to make some adjustments to my predictive models on SPY. It has been consistently under-estimating the range and I have seen consistent break outs (usually to the bottom) of the ranges which leaves me somewhat irritated because I like having an intra-day trading range to operate within. So this week, I have been working on adjusting the data for SPY and trying to correct for the volatility so that the model actually gives me a range that SPY WILL operate in and STAY in. I actually was successful in being able to come up with just such a predictive model! YAY!
Reliability is around 98% over back testing the past 3 weeks of data. The times it did break out of the range, it was a break out to the bottom, but for the most part the stock stuck to this range 98% of the time (note, I am confined to the time limit of back testing because this volatility is relatively new).
I also re-adjusted my time series model for SPY. According to that we really should have been hitting 400 last week, and we have not. So, kind of riskily, I have adjusted it for the past year of data. For most of this data, we have been in more of a downtrend that an up-trend. Thus, this is simply measuring the extent that SPY is declining and attempts to make time guestimates based on the current rate of decline. It is NOT useful to predict a bottom or a “natural range” like a full time series model will, but I am more interested in measuring reasonable rates of decline on SPY to see when we can somewhat expect to see the levels that I have targeted based on my full time series model. Hopefully this makes sense.
Okay, let’s apply these theories to practice!
Monday Range:
Predicted Monday Range is: 402 – 417
High: Looking for a high around 414 – 415
Low: Looking for a low of around the 405 range.
Bullish Break: 414 (the level the stock needs to break to commit, at least intra-day, to bullish sentiment)
Bearish Break: 407 (the level the stock needs to break to commit, at least intra-day, to bearish sentiment)
Time series model:
Based on this revised one where its measuring SPY’s rate of decline, the range for this week would be around 385 to 405.
I am anticipating a hard bounce once SPY finally makes it to the 300s. So, I would really like to see this come true, we hit the 300s this week in anticipation of a bounce, because SPY is really trailing on the oversold area right now, so we might as well just touch that area and then bounce to stabilize. But I guess we will see.
One thing I have noticed about this model is it tends to over-estimate the lows, but the higher end of the range actually has been consistently on point as a low for the week. For example, last week the higher end of the range was 412 and we indeed hit 412. This week, the higher end of the range is 405 so we can anticipate at least testing 405 (I am assuming its going to be lower though, let’s be real haha).
Technicals
SDS looks like a cup and handle and an inverse head and shoulders that is about to break out! SO this is good for those in SDS or who are short on SPY.
SPY looks like it is doing a trible top on the 1 hour chart and on the 4 hour chart. This is fantastic because if you remember reading my little study thing, triple tops on SPY on the 1 hour chart were right 100% of the time haha, so let us HOPE that this holds true here!
I don’t like where the Z Score is sitting right now on SPY, but its not unheard of for SPY to drop much much lower than where it sits now in terms of its SD from its mean. The last major sell off brought it down to -3 SDs away from its mean and we still have a ways to go before we get there, so, its not imminently prohibitive, I just am not happy about it. But who is happy about anything these days. SPY currently is about -1.8 SDs away from its mean, a drop to -2.5 would be a price of around 399 an da drop to - 3 would be a price of 391. The 390s is where I am looking for a bounce if it happens this week.
What about futures?
When futures opens, I can get a great sense of where SPY will open at and be able to cross compare to my predictions here. I will run the analysis tonight, if its anything overly interesting I will share it, but I think it really doesn’t matter at this point. We know that SPY is going to be volatile and we know where SPY will end up sooner or later, so its less relevant I think.
But if I run the numbers and it says something nuts like “Its going open at 400” then for sure I will update!
Other stocks on my watch list this week:
GRMN - for short entry
RTX - for long entry
XBI - to play bounce, but will likely follow SPY and drop to the low 60s or high 50s and I will be jumping in for a bounce along with SPY
BA - for another long entry, again, for a bounce after another drop
Anyway, thanks for reading and take care!
Trade safe tomorrow!
Premium indicators and content have launched! Get access at: www.patreon.com/steversteves
