Using a standard MACD and an indicator which colorizes price based on MACD signals, it can be observed that the current price decline looks similar to previous corrections and crashes with the exception of the Covid crash which was a rare black swan event. Assuming another black swan isn't upon us, and basing predictions on past performance, (two yellow flags, yes) the current price action can be said to have either another 0-5% to drop as a correction or another 35-42% to drop as a crash ( SPY $240 to $210 range).
What the previous crashes did was start declining into negative MACD (blue MACD line) territory (red "sell" signals in price), begin to turn around to the extent that the MACD line crossed the MACD signal line (blue crossing orange on MACD ) which gave yellow “hold” signals in price, but then turned back down before the MACD could turn positive which yielded red signals in price again. This red-yellow-red sequence is special because it is the difference between previous major crashes and previous corrections. If the MACD line crossed back into positive territory yielding a red-yellow-green pattern instead of a red-yellow-red then the potential crashes were averted.
The current situation is a red sell signal. The expectation of this analysis is that there will be a bounce soon which will cause a signal cross in the MACD to give a yellow “hold” signal. If from there the MACD line crosses into positive territory giving a green “buy” signal, then the crash has been averted and sideways or up will be the expected directions from that point. If the MACD fails to turn positive but instead crosses back below the signal line giving a red signal and completing a red-yellow-red sequence, then a crash is likely upon us.
Alternatively, we have a green-yellow-red signal now and perhaps this is the first of it’s kind market crash which doesn’t have a clear red-yellow-red signal in the upper portion of the decline. If anyone wants to utilize an inverse Skipper strategy they should go long at the end of the week which closes with a MACD signal cross failure (red-yellow-red), assuming we get such a signal. The timing of the potential short entry or sell signal will likely be in the September 2022 to December 2022 time period if the turning radius of this peak is as gradual as previous crashes.
The colorization indicator used is the “MACD Hybrid BSH” which is explained in detail in the indicator publication if anyone is interested. In short, BSH stand for “Buy Sell Hold” which in the colorization scheme, correspond to green, red, and yellow.
In the event of a crash, 210 looks like nice support. That's where I'd cover any shorts.
Note: This idea is not saying "go short", it's saying "go short if this happens."
Link to colorization indicator used:
What the previous crashes did was start declining into negative MACD (blue MACD line) territory (red "sell" signals in price), begin to turn around to the extent that the MACD line crossed the MACD signal line (blue crossing orange on MACD ) which gave yellow “hold” signals in price, but then turned back down before the MACD could turn positive which yielded red signals in price again. This red-yellow-red sequence is special because it is the difference between previous major crashes and previous corrections. If the MACD line crossed back into positive territory yielding a red-yellow-green pattern instead of a red-yellow-red then the potential crashes were averted.
The current situation is a red sell signal. The expectation of this analysis is that there will be a bounce soon which will cause a signal cross in the MACD to give a yellow “hold” signal. If from there the MACD line crosses into positive territory giving a green “buy” signal, then the crash has been averted and sideways or up will be the expected directions from that point. If the MACD fails to turn positive but instead crosses back below the signal line giving a red signal and completing a red-yellow-red sequence, then a crash is likely upon us.
Alternatively, we have a green-yellow-red signal now and perhaps this is the first of it’s kind market crash which doesn’t have a clear red-yellow-red signal in the upper portion of the decline. If anyone wants to utilize an inverse Skipper strategy they should go long at the end of the week which closes with a MACD signal cross failure (red-yellow-red), assuming we get such a signal. The timing of the potential short entry or sell signal will likely be in the September 2022 to December 2022 time period if the turning radius of this peak is as gradual as previous crashes.
The colorization indicator used is the “MACD Hybrid BSH” which is explained in detail in the indicator publication if anyone is interested. In short, BSH stand for “Buy Sell Hold” which in the colorization scheme, correspond to green, red, and yellow.
In the event of a crash, 210 looks like nice support. That's where I'd cover any shorts.
Note: This idea is not saying "go short", it's saying "go short if this happens."
Link to colorization indicator used:
Comment:
This week has closed with a yellow signal. Now wait to see whether it changes from yellow to red or green.
Comment:
Tomorrow is the close of the week which will give us an R-Y-R signal unless price rallies dramatically from where it currently is.
Trade active:
I don't see this weekly close recovering to yellow by end of day and I'm 90% confident next week will be red. I shorted 3 micros at 3705, stop 3760.5. 1.5% stop loss, bit of a swing trade entry attempt, bit risky due to weekend. 3 micros have notional value of $55,575 so isn't a super crazy risk. Will add more shorts next week if plan unfolds according to theory. Looking back at past R-Y-R signals, there was a max 1.5% draw down from the week's close in the following weeks. I know we haven't closed yet (it's 10:35am) but I'm anticipating closing around here or lower due to this R-Y-R signal coming to fruition today and probably triggering other systems to sell as well.
Comment:
Adding a screenshot to the record