Technical Analysis for a Bearish Alternative to SPY/SPXThere is a very strong bullish and bearish case for SPY/SPX. This is only an examination of a bearish alternative.
I will be looking at these three elements
Anchored VWAP (aVWAP)
Supply/Demand indicator, a custom indicator which keys off motive waves and volume. This is a personal indicator only (please don't request).
Wolfe Wave chart pattern
Let's start with the aVWAP, the buy side and the sell side.
The sell side is anchored on the SPX weekly highest high and we see that the price has reached the weekly sell side aVWAP, implying sell side volume that would need to be over come by buyers to break out.
The buy side is anchored in two places, the last significant low on March 23, 2020, and the last swing low on Oct 10th, 2022. These aVWAPs imply strong buy side volume, and we can see they are converging.
We can see how the sell side aVWAP is lined up with the Supply side indicator into a sell zone, similarly the buy side aVWaPs line up with the Demand side indicator into a buy zone.
So far - we have strong buy and sell zones. Next we will look at chart pattern and see if there is any pattern that would align with supply and demand zones, and there is one which I appreciate, the Wolfe Wave. I am certain there are others, line Elliott Wave counts, but I will focus on the Wolfe Wave for this analysis.
A notable point of mention is the retrace fib from bottom to top, the 618 fib retrace is around 4306, which is another level to consider for the 5th Wolfe wave, some might also suggest the current active SPX futures contract has reached this price level.
Analyzing the Wolfe Wave:
The End Point for a Wolfe Wave occurs when the upward diagonal/wedge converges, in this chart it is in the October,2023 time frame.
The End Price is where the current price to End Point time converge with the diagonal connecting wave 1 and wave 4 of the Wolfe Wave.
This implies a price level that is around 3400,and a look at the left side of the chart aligns it to the structure of the March/2020 top of the V shape.
This also roughly aligns with the 618 fib extension of the two trends, the move from the SPX high to the Oct/2022 bottom and the trend up to the current 4300 price zone.
I am only showing the fib extension from the last down trend, and the fib alignments are approximately the same, with TP1 at 618 and TP2 at 1.0 extensions.
Trading the Wolfe Wave:
Short Entry
The traditional entry point for a bearish Wolfe Wave is when the price re-enters the ending diagonal (the upward wedge) drawn on that chart. That price is approximately 4220 on the chart.
Target Prices
TP1: the first potential target price is the buy zone around 3900, possibly in the July 2023 time frame.
TP2: Reposition for another entry that extends deeper if the price goes below 3850 with a TP of 3400.
Once again, it is worth repeating that this is only a bearish technical analysis. Bullish break out patterns also exist where the price will not re-enter the upward wedge and will continue toward new local highs.
