SPY to retest all time low - volatility curve setup
I have a method of tracking actual volatility versus implied. I map the monthly "expected range" (the orange parabola) and then I expand it to match the actual movement of the price. (The purple parabola).
What I notice is this is usually like a clock winding-up and the spring is now wound as far as it can go before it takes more force. What I mean by that is the price of SPY could follow the upper curve (this is where the market maker is neutral along the curve), so long as the curve had room to expand. Now the curve cannot expand, it is pressed against the prior all time low (a support band). Interestingly - the price also has stopped at the prior resistance (200day MA).
So the price is primed and ready to slingshot across the price curve (the parabolas).
"Expected Move" only prices in a historical move. But by expanding the parabola along the actual price move we can get an actual expected move. I find it very suspicious that the actual expected move (realized volatility) is yet again larger than implied volatility and conveniently lined up to test the prior all time low.
Things to watch:
If those conditions are met, there's nothing to stop the price from flipping from one side of the parabola to the other and finishing the August monthly on a swing low.
Counter-thesis. The price has come so far that it reverts to expected move and finishes only a little lower than we are now along the upper orange parabolic curve.
If this is true - price may test prior "higher low" but will fail to breach it. So I would wait for price to take out the last prior higher-low.
Good luck.
What I notice is this is usually like a clock winding-up and the spring is now wound as far as it can go before it takes more force. What I mean by that is the price of SPY could follow the upper curve (this is where the market maker is neutral along the curve), so long as the curve had room to expand. Now the curve cannot expand, it is pressed against the prior all time low (a support band). Interestingly - the price also has stopped at the prior resistance (200day MA).
So the price is primed and ready to slingshot across the price curve (the parabolas).
"Expected Move" only prices in a historical move. But by expanding the parabola along the actual price move we can get an actual expected move. I find it very suspicious that the actual expected move (realized volatility) is yet again larger than implied volatility and conveniently lined up to test the prior all time low.
Things to watch:
- Watch the orange circle which is the slow stochastic to fall below 80.
- Watch the ADI to accelerate upward as price moves downward.
- Watch price to take out prior higher-lows.
If those conditions are met, there's nothing to stop the price from flipping from one side of the parabola to the other and finishing the August monthly on a swing low.
Counter-thesis. The price has come so far that it reverts to expected move and finishes only a little lower than we are now along the upper orange parabolic curve.
If this is true - price may test prior "higher low" but will fail to breach it. So I would wait for price to take out the last prior higher-low.
Good luck.