SPY: Revised Targets

Hey everyone,

Crazy, psycho @$$ stock.
Seriously. LOL!

Okay, so lots happening, lots going on. I have sat down with the chart and I also did another Z-Score chart during trading today to see if I could make sense of things so let's get into it.

Quick Recap in a nutshell:

- SPY hit top of the range today (which I rounded up from 407.76 ish to 409 and then the psychological 410 haha), but yeah it actually hit 409 range, which was the rounded up math predicted range. It did reject this area and futures continues to reject and not show an immediate interest in re-testing this.
- We are running hot on the RSI on both the lower time frames (1 to 5 minutes) and intermediate time frames (1 to 4 hrs). We did cool off a bit on the lower TFs in afterhours though.
- On the 1 hour Z-Score indicator, things are looking like they have room to move up; however, we are actually at some math resistance here:


Time Series
- Time series cap currently sits around 407 with revised data. Not very dramatic I know but that is because SPY's exponential growth is slow and steady. And shocker, we are above this level. What does that mean? We will get into it at the end.

Z Score Chart

Ah yes, the famous Z-Score chart. I love these charts because they have all the answers we want! So let's look:


So this is where we closed today, around -1 SDs. I have plotted out the mathematical supports and resistances so they are easier to see.

My immediate price target based on this chart was 408, which it was my intention after I took profits on my long trade, to re-enter long on pullback and ride it to 408. However, we never got that pullback. I should have just stayed in it for the day because 408 came and went lol! But I did the chart after I exited that position unfortunately :(. Anyway, moving on....

So now that we have 408 in the bag and this goal has been achieved, here are the next mathematical supports and corresponding price:

-0.9 = 410
-0.7 = 416
-0.5 = 421

The strongest level here is -0.7 or 416, with this area acting as resistance and support multiple times.

VIX

I love this chart!
VIX is INCHES away from complete neutrality, which mathematically and technically is the ULTIMATE support zone. After hours, I think technically VIX reached this point of absolute neutrality once AAPL and AMZN earnings released and the stocks rallied.

So, here we go with the application of this analysis which I will just format into FAQ;

Is the Bottom In?
- The short term bottom WAS in back at the 360s. LOL! But one of the things about bottoms, at least short term, is it takes about 6 weeks to really ascertain that a short term bottom was made and its essentially hindsight bias. The bottom is no longer "currently in" because it can't be currently in when it previously was. You see what I am saying? Its a philosophical conundrum. So no. But, BUT when I refer to bottom I mean temporary bottom.

Is the ABSOLUTE bottom in?
I still don't think so. Let me tell you why I personally think this, but you can obviously come to your own conclusions:

1. As other people have pointed out, the rallying we have seen was seen in other bear markets at equal proportions including the 2008 crises.

2. The thesis that this was simply a correction and the correction is now over also has to fail, in my opinion, because part of doing time series modelling is mapping out the growth line of a stock and measure the expected distance from that line at any given point. Corrections happen when stocks (and markets as a whole) grow too far from their normal growth trajectory. A correction brings stuff back in line, that is generally why you see pull back of about 20 to 30%. However, when a correction happens, you don't generally see a stock immediately shoot back up back outside of its natural growth line in a week or two. This is unnatural and puts us right back where we started. So the fact that time series on SPY is now 407 ON THE HIGH RANGE and SPY was recently trading at 409 doesn't give me confidence that SPY has learned its lesson when the natural growth at this point rests around 378 - 382 (407 is the highest of the high portion of the time series range).

3. Despite all this rallying the market has finally just sort of brought itself out of being dramatically oversold. If the market wanted to do another leg down, it really couldn't from where we were about 3 weeks ago. It was just far too oversold. This is serving as an opportunity to really tank the market, IMO.

There are several other reasons such as unconvincing volume, the act of shorts taking profits, etc. etc. etc. that all can contribute to this nice little bounce. But the ones above were the most compelling in my opinion and I suspect its a mixture of everything at play here.

Next Targets, what direction do we go from here?

- IF SPY breaks 410, then really the next area is the 420s.
- As of now I expect a sell down day to at the very least stabilize RSI and for longs to take their profits. Whether it continues down from there, I can't say for sure. There is a high probability SPY goes up and tests 410. And there is even more that it wants to try and break it and go to 420s. We will see whether SPY has shaken out its bullishness with 2 days of sustained selling and/or the formation of a new downtrend channel. That's really what we have to wait for as confirmation at this point. Its unfortunate, it really is, but its best to be safe than sorry.
- If you are like me and want to continue to build a short position up with these prices, then make sure you are either playing shares or doing long dated options. I prefer shares because of the horrid volatility, mind you if you go very far dated and ITM, you guard your premiums slightly better (There are other decay factors to consider here though), but at those prices I'd rather just spent the little extra and play shares lol.



I think that is it.
Hopefully this offers some insight or some idea.

As always, feel free to comment/question and critique!

Take care everyone and trade safe!