Last week here (and for the last 3 weeks), I very clearly laid out a more bullish bias. Furthermore, I highlighted possible weakness Tuesday into Wednesday, but tweeted out during that weakness “but don’t forget to buy the dip.” I appreciate that so many followers of mine find my work helpful and want to know exactly where to buy, but try to remember I have a service with paying subscribers and my loyalty is there when it comes to exact prices/trades etc.
For those who haven’t read my recent posts and are looking to learn what lead me to a bullish stance since the double bottom, I encourage you to go back and read my posts that laid out all my reasoning:
Weekly MACD cross: In the last five years there have been ten weekly bullish MACD crosses. In every instance the following week made a higher high and closed higher, albeit two of them very marginally. Last week was the 11th cross. Of course there is no guarantee that the market will close higher next week, but if history is any guide then buy the dip remains the protocol for next week. 
Weekly 2011 versus 2015: For several weeks I have used 2011 to compare where this market cycle currently lies since it so far very closely resembles 2011. As I mentioned last week, I am not predicting that the same outcome will take place; however, I think it opens up the possibility of what could happen given the market may currently “feel like it’s way too extended.” If you look at the RSI, MACD, and SPX stocks above their 50-day moving average there exact spot in 2015 aligns with a continued rally in 2011 – (note that the rally peters out by the end of the week and begins a multi-week correction). 
Below, in blue, is the daily 2011 chart highlighting approximately where the weekly MACD crossed (the blue highlights Monday thru Friday of that week): 
2014/2015: Last week I also highlighted some similarities to 2014, which also played into why I had a bullish bias going into the week. Then last week on Thursday I tweeted out an interesting observation. The level SPX was trading at during the ECB decision one year ago was the same level that the market was trading at during this years decision. More significant though was that last year, right before the decision, the area of breakdown was just being backtested (~2015 SPX) after a bottom was put in place. The exact same thing happened this year as 2020 SPX had just been backtested. What took one month last year (from 2015 to 2080 SPX) took two trading days this year (2020 to 2075 SPX). The reason I am showing this is in 2014, once 2080 was hit, a substantial pullback followed. That is obviously a potential once again; however, besides the obvious price action being substantially different, the RSI and MACD are also in very different places. The same can be said for 20-day highs and 20-day lows. Backtested day both years are in yellow; green is 2014 level of 2080
SPX 20-day highs: 
As you can see above the 20-day highs are at the highest level they have been in all of 2015; however, they have not made a higher high since the October 2nd rally. In 2014 it didn’t mean an immediate end to the rally when 20-day highs were making lower highs; however, it is something that should be monitored as further contraction serves as a caution flag.
SPX 20-day lows:
As of now 20-day lows is not signaling caution as it did in 2014.
SPY open interest and levels: Currently the main range on this open interest graph is 200/202 to 207. Given that price closed at 207.51, it seems it is already vulnerable to pulling back. Given that the FOMC decision is on Wednesday and the market often becomes jittery prior to a decision, it wouldn’t be surprising to see weakness early in the week. Furthermore, with the 200-day at roughly 206 and a gap at 205.5 a pull-back early in the week would be supportive of healthy consolidation. Although that scenario would make the most sense, it may not end up being what takes place. If, instead, the market continues to rally early in the week, it would likely be over extended going into the FOMC decision and much more vulnerable to a pull-back or correction after the decision.
Levels of significance and scenarios:
- SPY opening above 207: Resistance above at 208 (Friday’s high as well as the start of the waterfall on August 20th). Moving above there early in the week would certainly be surprising and likely lead to a much more vulnerable scenario later in the week (likely a short). However, levels of resistance above would be 209.5/210 and 211.
- SPY opening below 207: Levels of support below include 206, 205.50 and 203.50. Any pull-backs to those levels present potential buy the dip opportunities. How do you know which one offers a good risk/reward buy? Watch overall breadth (advance-delcine, up-down volume, TICKS), the VIX, and momentum stocks for helpful clues. Any dips below 203.50 targets 202.5/202 (the latter being a high strike area of puts) and then nothing till 200.
Wrapping it up: Once again my overall weekly bias leans bullish; however, only after a pullback or consolidation early in the week. A pull-back early in the week without major deterioration in breadth and price would confirm my bullish bias toward the end of the week. If price continues higher early in the week, I would begin to be much more suspect of a continued rally and likely look for opportunities to short. Finally, sideways consolidation all above 206 early in the week would put me in a neutral position going into the FOMC decision. That scenario would be the trickiest and one where looking elsewhere for clues becomes imperative.
For anyone looking for daily analysis and guidance, education on my process, and real time entries and exists come join us. Even if you are not interested in option trades or individual stock set-ups, current members receive daily and intra-day analysis of the overall market as well as ETF trades.
Surprise: A Christmas (Hanukkah) in October
Last week here (and for the last 3 weeks), I very clearly laid out a more bullish bias. Furthermore, I highlighted possible weakness Tuesday into Wednesday, but tweeted out during that weakness “but don’t forget to buy the dip.” I appreciate that so many followers of mine find my work helpful and want to know exactly where to buy, but try to remember I have a service with paying subscribers and my loyalty is there when it comes to exact prices/trades etc.
For those who haven’t read my recent posts and are looking to learn what lead me to a bullish stance since the double bottom, I encourage you to go back and read my posts that laid out all my reasoning:
Weekly MACD cross: In the last five years there have been ten weekly bullish MACD crosses. In every instance the following week made a higher high and closed higher, albeit two of them very marginally. Last week was the 11th cross. Of course there is no guarantee that the market will close higher next week, but if history is any guide then buy the dip remains the protocol for next week.
Weekly 2011 versus 2015: For several weeks I have used 2011 to compare where this market cycle currently lies since it so far very closely resembles 2011. As I mentioned last week, I am not predicting that the same outcome will take place; however, I think it opens up the possibility of what could happen given the market may currently “feel like it’s way too extended.” If you look at the RSI, MACD, and SPX stocks above their 50-day moving average there exact spot in 2015 aligns with a continued rally in 2011 – (note that the rally peters out by the end of the week and begins a multi-week correction).
Below, in blue, is the daily 2011 chart highlighting approximately where the weekly MACD crossed (the blue highlights Monday thru Friday of that week):
2014/2015: Last week I also highlighted some similarities to 2014, which also played into why I had a bullish bias going into the week. Then last week on Thursday I tweeted out an interesting observation. The level SPX was trading at during the ECB decision one year ago was the same level that the market was trading at during this years decision. More significant though was that last year, right before the decision, the area of breakdown was just being backtested (~2015 SPX) after a bottom was put in place. The exact same thing happened this year as 2020 SPX had just been backtested. What took one month last year (from 2015 to 2080 SPX) took two trading days this year (2020 to 2075 SPX). The reason I am showing this is in 2014, once 2080 was hit, a substantial pullback followed. That is obviously a potential once again; however, besides the obvious price action being substantially different, the RSI and MACD are also in very different places. The same can be said for 20-day highs and 20-day lows. Backtested day both years are in yellow; green is 2014 level of 2080
SPX 20-day highs:
As you can see above the 20-day highs are at the highest level they have been in all of 2015; however, they have not made a higher high since the October 2nd rally. In 2014 it didn’t mean an immediate end to the rally when 20-day highs were making lower highs; however, it is something that should be monitored as further contraction serves as a caution flag.
SPX 20-day lows:
As of now 20-day lows is not signaling caution as it did in 2014.
SPY open interest and levels: Currently the main range on this open interest graph is 200/202 to 207. Given that price closed at 207.51, it seems it is already vulnerable to pulling back. Given that the FOMC decision is on Wednesday and the market often becomes jittery prior to a decision, it wouldn’t be surprising to see weakness early in the week. Furthermore, with the 200-day at roughly 206 and a gap at 205.5 a pull-back early in the week would be supportive of healthy consolidation. Although that scenario would make the most sense, it may not end up being what takes place. If, instead, the market continues to rally early in the week, it would likely be over extended going into the FOMC decision and much more vulnerable to a pull-back or correction after the decision.
Levels of significance and scenarios:
Wrapping it up: Once again my overall weekly bias leans bullish; however, only after a pullback or consolidation early in the week. A pull-back early in the week without major deterioration in breadth and price would confirm my bullish bias toward the end of the week. If price continues higher early in the week, I would begin to be much more suspect of a continued rally and likely look for opportunities to short. Finally, sideways consolidation all above 206 early in the week would put me in a neutral position going into the FOMC decision. That scenario would be the trickiest and one where looking elsewhere for clues becomes imperative.
For anyone looking for daily analysis and guidance, education on my process, and real time entries and exists come join us. Even if you are not interested in option trades or individual stock set-ups, current members receive daily and intra-day analysis of the overall market as well as ETF trades.
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