SPY Up to its Tricks and Twists

Feb 10, 2022

So today went as predicted.
Congrats to all swinging short positions!

But if you are not already short, it might not be the time to jump on the short band wagon just quite yet.
I see SPY being tricky, tricky, tricky and playing its games again.

I have posted my forcecast data chart on the candlestick chart. Its a line graph that I generate with SPSS computed data based on my SPY model.
This line graph is extremely important to quantitative traders like me, because it can tell me impending direction changes and also sentiment.
And unfortunately, even after today, the sentiment it is showing tends to favour the bullish direction.

No, I don't think we are getting to ATHs anytime soon or if its even in the cards in the foreseeable future. BUT, it does mean that SPY isn't as heavy as I think bears are wishing it was (I know I am not happy about this at all).

If you look at the line graph, I have circled key areas for you to understand/compare. Blue indicates consolidation, green shows a shift from down to an uptrend with bullish conviction (the blue line hovering between the yellow and red line and touching the yellow line at times indicates a healthy uptrend with bullish conviction), yellow shows a downtrend with bearish conviction (the blue line hovers between the red and grey lines).

If you look at where the red arrow is pointing, you will see SPY consistently resting between the yellow and red lines, indicating an impending uptrend. There is not yet bullish conviction as it hasn't been able to test that yellow line yet, so that bodes well for bears. But in general, this is a chart I would anticipate seeing an impending small pop towards that yellow line. I hope it doesn't happen, but I have to work with what I am given.

Also, my long term projections today were actually still reliable. I had estimated a high of 458.31, but I expected us to fall WELL below this with CPI being released. However, we didn't. We hit 457.71. Very close, even with this heavy dump this morning (this data is represented in the line graph).

So how do we make sense of it all?
It could mean 2 things, truthfully.
1) SPY is going to consolidate a bit before selling off.
2) Spy is going to gap up slightly before selling off.

My revised projections for tomorrow indicate we could see another high of 457. My simple multiple regression coefficent formula estimates the following:

Open around 449.95 (Standard Error: +/- 1.22)
Possible High: 454.19 (Standard Error: +/- 1.35)
Possible Low: 447.11 (Standard Error: +/- 1.65).

(Keep in mind, the multiple regression coefficent formula makes the assumption that tomorrow will be a normal day with no external factors interfering. Model projections try to predict these external factors via historic data analysis which has yielded a slightly higher high prediction for tomorrow, but I am personally of the assumption that tomorrow will be a minor day with no catalysts. This assumption stems from the fact we had some aggressive moves today and the market needs to cool off. I am anticipating less volume and less aggressiveness tomorrow).

What I am looking for?
I will play what I am given. I didn't take any trades today so will need to play something tomorrow. I will gauge the sentiment in the morning and go from there.
At this point, nothing will surprise me anymore. I am inclined to play to the long side as a day trade based on the data I have so far.


Best of luck everyone and stay safe as always!

As always, feel free to ask your questions and leave your comments and/or feedback!

Feb 11, 2022

Note

I just want to clarify what I anticipate happening,
I anticipate SPY to consolidate a little bit before making its move down (option 1 that I indicated above). This is my personal opinion, it doesn't mean option 2 can't still happen, but I am leaning to option 1. The reason is we don't have that bullish conviction yet that would be required for a gap up.

So tomorrow I am anticipating a relatively flatish, choppy day, maybe grinding slightly lower.

The point I Just want to convey is that we likely aren't going to plummet to 400 by the end of week. We are going to chop around and then we will see some dramatic falling. So I wouldn't recommend jumping in short with Friday or Monday expiry option contracts. Its going to take a bit longer than that.

Not sure I made that clear in my post!

Take care everyone! Trade safe!