Wednesday, September 10, 2014

SP Signals Top

Stocks rose moderately today after experiencing a sharp sell-off yesterday.  SPY, an ETF proxy of the SP500 ended the day up 0.75 to 200.07.  Normally, I use the three-day test-of-the-high as a sell signal.  Friday's close was 201.11, far above today's close. 

I must admit that nearly every sell signal I've gotten over the past few years has not proven to be correct.  Prior to Federal Reserve money injections and ZIRP (zero interest rate program), these sell signals were "take it to the bank" accurate.  That being said, I was selling call premium and adding SPY put spreads and buying outright puts in both the October and January 2015 series today.

I have confidence in my positioning based on all of my derivative indicators rolling over.  The first one I look at is the standard deviation chart of the SPY price action.

This chart shows a more pronounced downtrend than price might.  While I might have been encouraged to play the SP to go up based on the potential for it to bounce off of the 20 day moving average, I'm reasoning that the standard deviation cycle WILL cycle down to the -2 level, which many consider the oversold level.

Another indicator I watch is the daily change in the 20 day moving average.

The trend here continues on the positive side but for the first time in this recent cycle, the MAD number has broken below the moving average.  This indicates a possible trend reversal.

Further substantiating my reasoning is a chart of the standard deviation of the MAD (moving average deviation).

I view this chart as being negative and not viewing today's bump up as a possible change in trend. 


This is a long term chart of SPY with Fibonacci retracement lines included.  Some technicians believe that we will have a pullback in the market followed by another surge to higher highs, perhaps as high as 220.  If that happens, these projections will need to be redrawn.  As it stands now, a common 38% retracement of the recent move could bring the SPY down to 165. 

Although the top may not yet be in, I feel that the biggest gains over the coming years will be on the downside so I will continue using up and down trading opportunities to expand my downside position and push it out to the future.

Decent gains on the downside parlayed into upside gains that could come on the last and final major rally of this bull market could put one in a very fine position at the market top to reap millions from the major decline that is sure to follow.

No comments:

Post a Comment