SPX - Short Term Bear - Swing Trade (Continuation)This is a continuation to my previously posted trade...
Unfortunately I stopped out on the previous trade. That's my fault. There's additional analysis I did that helped me understand where I missed. However, the pattern is still very much in tact and the opportunity still exists.
Here's a summary of what I go through in the video, but most important is watch the video to get the full details to better understand the observations.
1hr Chart:
After reviewing the weekly, daily, 4hr, 1hr, 5min, 1min charts I recognized the most important indicator for the current prices is the 1hr chart and most important the 50MA crossing down on the 200MA.
In addition, there are additional indicators that currently and historically are most important for this setup. Here are the 5 mentioned in the video.
- H&S Pattern/Triple Top/Divergence initial formation
- Cross down on Strong Support Line
- Retest/Fail Strong Support Line
- A wave up/down, forming a downward trendline
- QQE Signal triggering short as it approaches the channel support line towards a break
Historically there have been 4 instances since 2022 when the 50MA has crossed below the 200MA on the 1hr chart
July 26, 2024 - -5.0% in 48 bars (5-6 trading days) from time of cross to bottom of big move
Apr 15, 2024 - -3.70% 35 bars (7 trading days) from time of cross to bottom of big move
Aug 10. 2023 - -3.75% 40 bars (7 trading days) from time of cross to bottom of big move
Feb 24. 2023 - -5.8% 75 bars (10 trading days) from time of cross to bottom of big move
As mentioned in the video, it has been 7 trading days since the current cross of the 50MA of the 200MA, however, it's unique that the cross took place during the low volume holiday trading period which may have an effect on timing compared to historical moves.
Please watch the video for more in depth insight into the historical pattern formations and the relationship to the current price action along with my prediction and trade potential.
Fundamental Support:
Is still intact from the prior trade
- Buffer Indicator 203.7% (Near all time highs)
- Buffet portfolio at highest cash level since 2008 (325B)
- Shiller PE at 37.2, near 2022 peak of 38, Dot com bubble of 44
- FED announced fewer rate cuts in 2025
- Core PCE at 2.8% and rising since June 2024, above 2% FED target
- Inverted Yield Curve is no longer inverted as of Sep 2024, the longest (793 days) and deepest inversion in history. All previous sustained inverted yield curves (8 Total since 1960) except 1 were followed by a recession within 6-12 months once the yield curve was no longer inverted.
Economic Data:
- Next significant economic data is ADP employment report Wed Jan 8th and Unemployment Rate Fri Jan 10th
- A lower or higher employment figure than forecast could move the market and is a potential risk to the short position. However, I went back and reviewed previous employment reports and market movements, and basically whatever the trend the market was in at the time of publication, it continued to move in, so I'm not overly concerned.
- Next week PPI and CPI will be published on Tues Jan 14th and Wed Jan 15th respectively. These are both potential movers if they were to come in lower/higher, as it may impact the % chance of FED cuts.
- Trump inauguration on Monday Jan 20th, also falling on Martin Luther King Day (Markets Closed). I would anticipate potential positive market reaction following his inauguration given the pro-business policies and potential rally, so this is a risk.
Overall:
If you've watched the video, you can see that the chart patterns historically match up very well to the current. Again, history doesn't repeat itself, but it rhymes. There's no sure thing in this business, however, considering all the factors, I find this to be a solid technical and fundamental trade and given the dominos fall in line I will be taking a position.
Current Position:
I currently have not taken a position on this trade. I am waiting for the QQE Short signal as mentioned in the video, or any other relevant move to give me the green light.
However, here's what I'm looking for if all goes to plan...I will update in the notes if/when I take a position.
SPXS Call Options
Strike $6.00
Expiration Jan 24th, based on the estimated timeframe mentioned in the video
Option Price: Ideally .20-.30
Options: 50-100 depending on my confidence in the chart and price above
Stop: 1/2 my entry price
Target:
Given SPXS is 3x Bear the S&P...I estimate the first target range is $6.75-$6.90 which would be reaching the previous ATH of S&P of 5675
Option Price Est. $.85-$1.00
Approx: 3:1 - 5:1 Profit Loss Ratio
The full target range would be between $7.00-$7.25 which would be reaching the H&S Target 5630 or 200 Day Moving Average 5577
Option Price Est. $1.00-$1.50
Approx. 3.3:1 - 7.5:1 Profit Loss Ratio
