So after the trading day Friday I was minding my own business and ran the next week projections and wouldn't you know it, an old friend decided to pop back on the screen.
Which old friend was that?
$355 TP.
Now the last time this friend popped up in my projections, he let me down. We were never quite able to visit him because, alas, he was just so close, yet so far. Like a long distance relationship. The yearning and desire just wasn't enough to fulfill expectations.
So then I got thinking. Is this time different? Did SPY buy a plane ticket to finally go visit its long lost love, 355? Maybe even catch a free ride on Boeing's stock which, much like its Max 8, is spiraling nose first into the ground?
Maybe. But I think this really calls for a more deeper dive into SPY, to see where we are and where we stand. This means, we need to pull out some old tricks. These old tricks many of you will be familiar with if you have been following me for some time. They include our friend Time Series modelling, Regression and, of course, Z-Score.
So....I guess we should get started. But first let us look at a recap of where we are, some of the technicals that other people are pointing out and then we will get into my trading style which is just the math. As I generally do, I will present all of the raw data as I calculate and discover it, at the end I will offer my OPINION on it, but I will leave it to all of you to decide which thesis you prefer.
Recap & Technicals:
Long of the short of it was the market was no bounce city this week. Great. I love that for us day traders. Stops front right and centre. My swing positions did well which were all short but looking for a bounce that just never came was annoying and distracting. But still ending green so no complaints or regrets!
Thus, we have now found ourselves in the very expected and kind of everyday occurrence where we are now massively oversold. And I am getting to the point where its probably best to just ignore oversold and overbought circumstances. I know many people trade religiously based on RSI levels, but those traders seem to be stopping out a lot in this market and it really makes me think that we should just ... forget it. You know? Its distracting and leaves a false sense of "this needs to bounce" or "This is over extended and needs to sell". And it doesn't actually tell us what we think it tells us. I have merged RSI over into my math models and I have thus been able to run analyses on how RSI affects price. And what I have found is that RSI is not useless. It is very helpful, but it more predicts the SIZE of the next move vs the direction (which people assume).
But anyway for those adamant about it, our current Daily RSI on the major time frames are quite overdone:
We have that double bottom on the daily that some people are getting hot and bothered by:
You will notice here as well that the RSI on the daily is also approaching quite oversold.
And something that I haven't really seen anyone mention is that we are approaching a double bottom on the weekly as well:
Don't you love it? Its clearly bullish. Anyone short is just silly..... (LOl Jk ;).. or am I?!)
Monthly Range:
So you can see in the main chart above, SPY broke through its final monthly bear target and then rejected back into it. The final monthly bear target calculated was 366.19. And for the most part, everything (Except for TSLA) has broken down from its monthly range (I mean, everything I track which is like 4 or 5 stocks.. so yeah we can safely say ABSOLUTELY EVERYTHING, NO EXCEPTIONS).
Weekly Targets:
As you know, we failed to hit any of the bullish weekly math targets but we have hit all of the 3 bear targets:
Z-Score
There's our old friend. Did we miss it? I kind of did. I forgot how useful these are to reference.
Anyway, looking at this, we see that SPY is currently at -2.04 standard deviations away from its yearly trading mean.
And when we check the previous year worth of Z Score data, we see this actually isn't even the absolute low it has traded at over this year. SPY has gone all the way down to -2.11 which equates to a close price of around 366.
So this is likely a possible reason why we bounced so aggressively going into close on Friday, because SPY, at that point, was trading well below its mathmatical support at -2.11 and we see it actually bounced right back up to close above this support.
If we look just in terms of pure mathmatical support, ignoring what SPY has done and just paying attention to the principles of statistical regression, the next obvious support would lie at -2.5 Standard Deviations away. This equates to a close price of 254.
If you have followed along for a while, you will remember that SPY has pushed all the way down to -3 Standard Deviations away when it was really determined, before finding support. This is why I like to use Z Score because it omits the need of us having to rely on technical support and resistance and we can quickly plot out support and trajectory using basic statistical principles. So -2.5 is really an area that I would be looking for SPY to test and then bounce back up.
SPY seems to be fine with wicking below its previous support as long as it maintains its closing price support. So with that said, should we approach the 350s, I do suspect some dramatic bouncing back into the 360s to close, where SPY has the most support. I think for SPY to close in these lower levels, it will take a little bit more of a bounce and consolidation to stabilize itself a bit more for such an aggressive move. But at this point, the move really isn't that aggressive. If SPY wanted to close at 355, its essentially only -0.46 Standard Deviations away, which really isn't that much if you think about it, but it is sizeable enough that it would take SPY a little time to get there.
Time Series
So as a refresher, because its been a long time since we have discussed time series, what time series does is it plots out SPY's natural growth trajectory since its trading history in a nice linear and/or quadratic line. I use quadratic time series over linear regression time series because the relationship is stronger. But both are acceptable.
From this line we can plot where SPY should be trading at any point in its history.
To show you its current regression/time series plot, see the chart below:
The blue is the quadratic time series targets, and my personal preference that I use.
The red is the linear regression (regression to the mean) time series targets.
I will list both because I know there are regression traders on here that subscribe to the linear regression theory. Both are identical its just how you chose to pot your regression line.
So time series on the quadratic line places SPY for next week trading between 356 and 381.
The linear regression line places SPY between 302 and 352.
You can see why I subscribe to the quadartic model. It tends to be a little more accurate and more reliable and provide a more tight range. But that is not to say that SPY isn't gunning for 302 to 352. Because essentially what this is saying is that 302 to 352 is where SPY should be falling right now in a perfect, linear situation. Quadratic just allows for and interprets these frequent deviations from normal linear relationships that are omnipresent in stocks.
So the moral of time series is that 356 seems to be a key target that is absolutely achievable and soon according to the quadratic model. And then interpreting this in the broader context of the linear model, we know that much more downside is likely (see? Both approaches are useful in conjunction!)
Targets for Next Week:
So, after all my babbling and talk about statistics all you care about are targets and probabilities right? Okay, fair.
So next week, the following are the calculated targets:
Bull Targets:
1. 379.14
2. 381.73
3. 384.32
Bear Targets:
1. 355.80
2. 352.36
3. 348.92
Which are likely:
Bull target 1 (379.14) seems really likely followed by bear target 1 (355.80) if we are sorting by probabilities.
Considerations for next week:
Major news catalysts next week (when will it END!).
GDP, Housing, more fed talks (They never shut up), etc. etc. etc. Just tons of great news coming down the pipeline.
This may actually be the catalyst the market is looking for to break further down below its support and invalidate this double bottom.
Because lets be real. We know its probably not actually a double bottom, right?
My opinion:
Its going down. 355 is my preferred target. But I do expect to POTENTIALLY see 379. I will scale in more short if we can see 379 for a swing.
Either way, the numbers and analysis are there. They tend to all make sense when considering collectively. So I think there is enough information for you to formulate your own opinions.
Feel free to share them with me, because I actually love to hear other's thoughts.
Trade safe as always and leave your questions, comments and critiques below!
Thanks for reading my wordy post!
Which old friend was that?
$355 TP.
Now the last time this friend popped up in my projections, he let me down. We were never quite able to visit him because, alas, he was just so close, yet so far. Like a long distance relationship. The yearning and desire just wasn't enough to fulfill expectations.
So then I got thinking. Is this time different? Did SPY buy a plane ticket to finally go visit its long lost love, 355? Maybe even catch a free ride on Boeing's stock which, much like its Max 8, is spiraling nose first into the ground?
Maybe. But I think this really calls for a more deeper dive into SPY, to see where we are and where we stand. This means, we need to pull out some old tricks. These old tricks many of you will be familiar with if you have been following me for some time. They include our friend Time Series modelling, Regression and, of course, Z-Score.
So....I guess we should get started. But first let us look at a recap of where we are, some of the technicals that other people are pointing out and then we will get into my trading style which is just the math. As I generally do, I will present all of the raw data as I calculate and discover it, at the end I will offer my OPINION on it, but I will leave it to all of you to decide which thesis you prefer.
Recap & Technicals:
Long of the short of it was the market was no bounce city this week. Great. I love that for us day traders. Stops front right and centre. My swing positions did well which were all short but looking for a bounce that just never came was annoying and distracting. But still ending green so no complaints or regrets!
Thus, we have now found ourselves in the very expected and kind of everyday occurrence where we are now massively oversold. And I am getting to the point where its probably best to just ignore oversold and overbought circumstances. I know many people trade religiously based on RSI levels, but those traders seem to be stopping out a lot in this market and it really makes me think that we should just ... forget it. You know? Its distracting and leaves a false sense of "this needs to bounce" or "This is over extended and needs to sell". And it doesn't actually tell us what we think it tells us. I have merged RSI over into my math models and I have thus been able to run analyses on how RSI affects price. And what I have found is that RSI is not useless. It is very helpful, but it more predicts the SIZE of the next move vs the direction (which people assume).
But anyway for those adamant about it, our current Daily RSI on the major time frames are quite overdone:
We have that double bottom on the daily that some people are getting hot and bothered by:
You will notice here as well that the RSI on the daily is also approaching quite oversold.
And something that I haven't really seen anyone mention is that we are approaching a double bottom on the weekly as well:
Don't you love it? Its clearly bullish. Anyone short is just silly..... (LOl Jk ;).. or am I?!)
Monthly Range:
So you can see in the main chart above, SPY broke through its final monthly bear target and then rejected back into it. The final monthly bear target calculated was 366.19. And for the most part, everything (Except for TSLA) has broken down from its monthly range (I mean, everything I track which is like 4 or 5 stocks.. so yeah we can safely say ABSOLUTELY EVERYTHING, NO EXCEPTIONS).
Weekly Targets:
As you know, we failed to hit any of the bullish weekly math targets but we have hit all of the 3 bear targets:
Z-Score
There's our old friend. Did we miss it? I kind of did. I forgot how useful these are to reference.
Anyway, looking at this, we see that SPY is currently at -2.04 standard deviations away from its yearly trading mean.
And when we check the previous year worth of Z Score data, we see this actually isn't even the absolute low it has traded at over this year. SPY has gone all the way down to -2.11 which equates to a close price of around 366.
So this is likely a possible reason why we bounced so aggressively going into close on Friday, because SPY, at that point, was trading well below its mathmatical support at -2.11 and we see it actually bounced right back up to close above this support.
If we look just in terms of pure mathmatical support, ignoring what SPY has done and just paying attention to the principles of statistical regression, the next obvious support would lie at -2.5 Standard Deviations away. This equates to a close price of 254.
If you have followed along for a while, you will remember that SPY has pushed all the way down to -3 Standard Deviations away when it was really determined, before finding support. This is why I like to use Z Score because it omits the need of us having to rely on technical support and resistance and we can quickly plot out support and trajectory using basic statistical principles. So -2.5 is really an area that I would be looking for SPY to test and then bounce back up.
SPY seems to be fine with wicking below its previous support as long as it maintains its closing price support. So with that said, should we approach the 350s, I do suspect some dramatic bouncing back into the 360s to close, where SPY has the most support. I think for SPY to close in these lower levels, it will take a little bit more of a bounce and consolidation to stabilize itself a bit more for such an aggressive move. But at this point, the move really isn't that aggressive. If SPY wanted to close at 355, its essentially only -0.46 Standard Deviations away, which really isn't that much if you think about it, but it is sizeable enough that it would take SPY a little time to get there.
Time Series
So as a refresher, because its been a long time since we have discussed time series, what time series does is it plots out SPY's natural growth trajectory since its trading history in a nice linear and/or quadratic line. I use quadratic time series over linear regression time series because the relationship is stronger. But both are acceptable.
From this line we can plot where SPY should be trading at any point in its history.
To show you its current regression/time series plot, see the chart below:
The blue is the quadratic time series targets, and my personal preference that I use.
The red is the linear regression (regression to the mean) time series targets.
I will list both because I know there are regression traders on here that subscribe to the linear regression theory. Both are identical its just how you chose to pot your regression line.
So time series on the quadratic line places SPY for next week trading between 356 and 381.
The linear regression line places SPY between 302 and 352.
You can see why I subscribe to the quadartic model. It tends to be a little more accurate and more reliable and provide a more tight range. But that is not to say that SPY isn't gunning for 302 to 352. Because essentially what this is saying is that 302 to 352 is where SPY should be falling right now in a perfect, linear situation. Quadratic just allows for and interprets these frequent deviations from normal linear relationships that are omnipresent in stocks.
So the moral of time series is that 356 seems to be a key target that is absolutely achievable and soon according to the quadratic model. And then interpreting this in the broader context of the linear model, we know that much more downside is likely (see? Both approaches are useful in conjunction!)
Targets for Next Week:
So, after all my babbling and talk about statistics all you care about are targets and probabilities right? Okay, fair.
So next week, the following are the calculated targets:
Bull Targets:
1. 379.14
2. 381.73
3. 384.32
Bear Targets:
1. 355.80
2. 352.36
3. 348.92
Which are likely:
Bull target 1 (379.14) seems really likely followed by bear target 1 (355.80) if we are sorting by probabilities.
Considerations for next week:
Major news catalysts next week (when will it END!).
GDP, Housing, more fed talks (They never shut up), etc. etc. etc. Just tons of great news coming down the pipeline.
This may actually be the catalyst the market is looking for to break further down below its support and invalidate this double bottom.
Because lets be real. We know its probably not actually a double bottom, right?
My opinion:
Its going down. 355 is my preferred target. But I do expect to POTENTIALLY see 379. I will scale in more short if we can see 379 for a swing.
Either way, the numbers and analysis are there. They tend to all make sense when considering collectively. So I think there is enough information for you to formulate your own opinions.
Feel free to share them with me, because I actually love to hear other's thoughts.
Trade safe as always and leave your questions, comments and critiques below!
Thanks for reading my wordy post!
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