SPY into the dirt
I am basically doing the same post across tickets for the S&P 500 so interested parties will see it. I have a very high level of conviction that this analysis is broadly correct and so I want it seen. In part because, lets be honest, it feels good to be right, and secondly, I know the pain of losing money and the optimism and cheerfulness of when you are in the money.
There are the things we care about:
The top chart shows
SPY. The date and price ranges on SPY show the losses from the month when the Eurodollar broke free of the EMA Ribbon with a whole bar above the ribbon. Now, just a few days ago I did a post on SPXUSD and the Eurodollar when the price action had just tested the EMA ribbon as support, and I was calling for the market to go bonkers. You can see in the purple box on the Eurodollar how the whole bar of this month's candle is above the EMA ribbon. You can also zoom in and see that tiny wick that was proof of support.
And what happened after that retest? The market has gone bonkers. It seems clear that we have a high probability chance of SPY going below the EMA ribbon in a serious way.
The SPY chart has a gap in the EMA ribbon because I can only have 10 indicators, I like this EMA ribbon, but I also wanted to add the lower limit of the 3rd standard devation bollinger band. Basically if price action gets below the bollinger band you need to use basic bollinger band theory real quick. That is not a technical place to add to your short. It is a good place to take profit or go long, depending on the particulars. It is a good place to look for relative lows and often reversal patterns have three touches on support, so looking for a continuation pattern to play after the 2nd or third poke through makes a lot of sense. It is a great time to look at your favorite indicators for divergence.
Here is a recent post on the inverted yield curve that is calling for the SPY/SPX/SPXUSD SPX.ectera to continue on the way down.
Addressing Mental Resistance
One of the main reasons I see some people resisting the bearish call is because of the human toll it will take. Charting patterns, bull market bubbles, bear market panic selling can look so neat and tidy when you just look at the charts. But when you consider the people behind winning and losing trades it can mess with your perception of reality, or what will happen no matter what you do. If you look at the chart and have problems believing in it because of the human toll that is the wrong perspective. Nothing is 100%, no forecast or supposition can be total. But you can say there are a lot of factors pointing to the market dropping over 40% and you can make and lose money over that depending on your actions. And really, don't talk to much to people that cannot own their own trades.
You could talk to someone and they look at the monthy chart and go way to big short on that timeframe and ignore where they are on the daily chart with the Bollinger Band and divergences. Many such cases. Sad.
Conclusion
if this downtrend resembles previous downtrends we have over a year of losses, between the bounces here and there. This is a monthly chart analysis. If you go short with way too much margin and poor stop management you can still get BTFO'd. I am relatively new to trading and charting (about 2 years) and in my youth I shorted way to close to the base of the bollinger band because I though the indicator was to simple for use in most trades. Now it is one of my favorite go to indicators for checking long term resistance and support. Now I have the lesser problem of sometimes having my short to tight at the long term BB and taking small losses rather than getting BTFOd because I went long at mega-long term resistance.
I went ito SPXU, a -x3 ETF of SPX earlier in the week. That was a very good decision so far. I plan on taking profit when SPY/SPXUSD pricks its way through the 3rd Standard Devation Bollinger band. After the first bounce I'll get more complex, using trend lines and divergence to get another short entry.
There are the things we care about:
- The interest rate yield curve inverts.
- The yield curve corrects
- The Eurodollar begins to pump, first from its low and then through the EMA ribbon
- The EMA ribbon fails as support (or some other measure of dynamic support)
- Value Investors step in/DCA'ers finally turn the tide till the next bear market
The top chart shows
SPY. The date and price ranges on SPY show the losses from the month when the Eurodollar broke free of the EMA Ribbon with a whole bar above the ribbon. Now, just a few days ago I did a post on SPXUSD and the Eurodollar when the price action had just tested the EMA ribbon as support, and I was calling for the market to go bonkers. You can see in the purple box on the Eurodollar how the whole bar of this month's candle is above the EMA ribbon. You can also zoom in and see that tiny wick that was proof of support.
And what happened after that retest? The market has gone bonkers. It seems clear that we have a high probability chance of SPY going below the EMA ribbon in a serious way.
The SPY chart has a gap in the EMA ribbon because I can only have 10 indicators, I like this EMA ribbon, but I also wanted to add the lower limit of the 3rd standard devation bollinger band. Basically if price action gets below the bollinger band you need to use basic bollinger band theory real quick. That is not a technical place to add to your short. It is a good place to take profit or go long, depending on the particulars. It is a good place to look for relative lows and often reversal patterns have three touches on support, so looking for a continuation pattern to play after the 2nd or third poke through makes a lot of sense. It is a great time to look at your favorite indicators for divergence.
Here is a recent post on the inverted yield curve that is calling for the SPY/SPX/SPXUSD SPX.ectera to continue on the way down.
Addressing Mental Resistance
One of the main reasons I see some people resisting the bearish call is because of the human toll it will take. Charting patterns, bull market bubbles, bear market panic selling can look so neat and tidy when you just look at the charts. But when you consider the people behind winning and losing trades it can mess with your perception of reality, or what will happen no matter what you do. If you look at the chart and have problems believing in it because of the human toll that is the wrong perspective. Nothing is 100%, no forecast or supposition can be total. But you can say there are a lot of factors pointing to the market dropping over 40% and you can make and lose money over that depending on your actions. And really, don't talk to much to people that cannot own their own trades.
You could talk to someone and they look at the monthy chart and go way to big short on that timeframe and ignore where they are on the daily chart with the Bollinger Band and divergences. Many such cases. Sad.
Conclusion
if this downtrend resembles previous downtrends we have over a year of losses, between the bounces here and there. This is a monthly chart analysis. If you go short with way too much margin and poor stop management you can still get BTFO'd. I am relatively new to trading and charting (about 2 years) and in my youth I shorted way to close to the base of the bollinger band because I though the indicator was to simple for use in most trades. Now it is one of my favorite go to indicators for checking long term resistance and support. Now I have the lesser problem of sometimes having my short to tight at the long term BB and taking small losses rather than getting BTFOd because I went long at mega-long term resistance.
I went ito SPXU, a -x3 ETF of SPX earlier in the week. That was a very good decision so far. I plan on taking profit when SPY/SPXUSD pricks its way through the 3rd Standard Devation Bollinger band. After the first bounce I'll get more complex, using trend lines and divergence to get another short entry.
Related publications
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.