Hey everyone,
Another special update/ maybe a bit of a deep dive into $SPY.
I think I have been really just in denial for whatever reason about the market topping and I really needed to just sit down and look at everything.
As well, I have gotten carried away with Pinescript to the point that I have completely neglected back-checking and fact checking things in SPSS and R, which are my roots as a stats guy haha.
So I decided to sit down and actually a) Do another time series analysis in R and SPSS and b) Review my previous time series models that I haven't really touched since after our October lows.
I also posted a video update I believe last week titled "Special Update". In this video, despite me clinging to a bullish bias, it was abundantly clear the likely outcome of everything and so, if you haven't watched that, maybe check it out, I will link it below. But I will make mention of the same assessments in that video in this post, its not really necessary.
At the end of the day, this post is really for me. Because I really need a reality check to my low key newly adopted permabull mentality haha.
So buckle up buckaroo, its probably going to be a lengthy post.
Time Series
So historically, pre thresholds and such, time series was what I used to trade. I would plot time series out on a shorter and longer timeframe. I made an indicator that sort of does this to a mitigated extent in pinescript if you are interested. I can link that below.
But in my pursuits of modelling, I merged over to using threshold levels as opposed to time series models because they were less labour intensive and more user friendly. And for the most part they work fine for short term trading. Its just, they're not that helpful for longer term outlooks like we are attempting to do with SPY, because you see we are in a position where SPY is playing peak-a-boo with its threshold on the 3 month timeframe. And its quite infuriating. But I forgot that time series can answer these questions for us and we don't actually have to wait for a break.
So que the time series model, new and improved, 2.0. According to that, which has been updated as of today. SPY's current projected range, based on its overall trajectory since inception, is between 439 and 365, with a mean of 403.
That means, 403 is our expected price right now based on SPY's historic growth rate, with a max deviation of up to 439 and a min of down to 365.
Where SPY has topped, we were outside of this expected range. This was the same leading into September of 2021, we surpassed the expected rate only to experience a massive correction/bear market that started in January.
In October of 2022 we actually kissed the anticipated low range. The low range as of October 2022 was 348, and we just kissed it and bounced aggressively. The highest high in the range as of July 27th (our current top) was 438. We saw rejection and are now hovering in the 438/437.
What is more interesting, is using my old model that hasn't seen any love since around October of 2022, it plots our current range as of this very day at 438 with a mean of 403. (Lol, isn't it just so annoying? Had I been paying attention, we would have known ages ago).
So for those who call this bull rally a "correction". That is technically correct. We corrected back to the top of the range from the very bottom of the range. And now we are at the top of the range and should, theoretically, see a correction back down, at least to the mean of 403.
403 seems to be the sweet spot as both the Old and New model are saying 403 should be the mean at this time. In looking at the math comprising the two different models, they are pretty similar. Which is to be expected as SPY has not fundamentally changed. It is still operating on its normal growth trajectory and route. This is good, because there hasn't been any major fundamental change in SPY's trajectory.
Time Series Cavet
Now there is always a but with things. The reality is, stocks will exceed ranges all the time. This is why we have "corrections". In September of 2021, SPY had exceeded its growth range by... a lot...
This was the first time SPY had really surpassed its expected growth range from what I can see. But other stocks, like NVDA and MSFT, tend to have frequent jumps outside of its range, only to see some corrections later.
But SPY surpassed its range, likely owning to the fundamental and economic conditions supporting such an unexpected and accelerated growth at the time. Its likely we don't have the same conditions required at this point to sustain such an accelerated growth rate beyond its anticipated trajectory, but I can't be sure because I am not a fundamental analyst.
We ultimately did a mean reversion after September of 2021 back to the anticipated range and all was well. You could very well have shorted in September of 2021, with the TP being a mean reversion to sub 390, and been successful. Assuming you had unlimited time in your short position and were willing to wait about a year to reach it (this is another reason I prefer the threshold method, as its more of an immediate representation of PA than time series). But timing is everything in general.
So then we have to ask, does the PA and chart support the time series assessment, that we are capped out?
And for that, we have to look at a few things, that I have already pointed out. First, we have a really nasty monthly candle:
The only month that we saw this type of nasty engulfing candle lead to a higher high the following month was back in 2021, again the year we were exceeding ranges and had a bit of a different economic .. lets say... objective.
Next, the current volume composition of SPY resembles previous volume compositions of tops:
The green lines correspond to local bottoms and the red to tops. From what I have gathered from running some assessments (albeit this is still under review as a reliable method), the degree of the sell is proportionate to the ratio. The lower the ratio, the bigger the sell, the higher the ratio the stronger the rally.
We are at a ratio of 0.59 and here are some examples of the sells that have followed:
(Note I am only counting from when the signal was seen and not from the top of the sell).
Not all incredibly dramatic, some are just minor, but the majority seem to be at least, on average, about 6 - 8%. Which we have almost achieved at this point. But we remain in the topping zone at this point.
Any other indications?
I briefly talked about this, but SPXS and SPXU are doing really well defined, inverse head and shoulder patterns on their daily charts:
SPXS:
SPXU:
The only time I found something remotely similar was 2022 and it wasn't as pretty:
So I am not sure how to take this, as it seems to be a very unique case for SPXS/SPXU/HSD (for you Canadians).
And now for the Q&A:
So is it a short?
Maybe. I would prefer to leave it to you to make up your own mind.
I am trying to be as unbiased as possible and just present what I am seeing; however, this is already biased because everything I am presenting is short focused. But its just, it's what the evidence is showing right now.
Can we go higher?
Absolutely! Like I said, the range can be exceeded. It has before. It will eventually lead to a correction though. That much is sure.
What would be a reasonable TP?
403 is the mean at this point. In the next 50 days, the mean increases to around 415. 415 is the second low target on the 3 month timeframe. So I would say, if we were going to get follow through, between 403 and 415 to the downside.
Will we have another bear market?
At this point, selling from here would be a correction or a mean regression.
I don't buy the whole "economic catastrophe" narrative. Selling down to 403 would be a simple regression to the mean. Selling all the way down to 380 would be an overshoot to the low end of the range.
The economic conditions may just serve as the catalyst and scapegoat for an otherwise necessary correction.
I think that is it everyone.
As always, thanks for reading and safe trades and please feel free to leave your questions/comments and thoughts below!
Take care =-)!
Another special update/ maybe a bit of a deep dive into $SPY.
I think I have been really just in denial for whatever reason about the market topping and I really needed to just sit down and look at everything.
As well, I have gotten carried away with Pinescript to the point that I have completely neglected back-checking and fact checking things in SPSS and R, which are my roots as a stats guy haha.
So I decided to sit down and actually a) Do another time series analysis in R and SPSS and b) Review my previous time series models that I haven't really touched since after our October lows.
I also posted a video update I believe last week titled "Special Update". In this video, despite me clinging to a bullish bias, it was abundantly clear the likely outcome of everything and so, if you haven't watched that, maybe check it out, I will link it below. But I will make mention of the same assessments in that video in this post, its not really necessary.
At the end of the day, this post is really for me. Because I really need a reality check to my low key newly adopted permabull mentality haha.
So buckle up buckaroo, its probably going to be a lengthy post.
Time Series
So historically, pre thresholds and such, time series was what I used to trade. I would plot time series out on a shorter and longer timeframe. I made an indicator that sort of does this to a mitigated extent in pinescript if you are interested. I can link that below.
But in my pursuits of modelling, I merged over to using threshold levels as opposed to time series models because they were less labour intensive and more user friendly. And for the most part they work fine for short term trading. Its just, they're not that helpful for longer term outlooks like we are attempting to do with SPY, because you see we are in a position where SPY is playing peak-a-boo with its threshold on the 3 month timeframe. And its quite infuriating. But I forgot that time series can answer these questions for us and we don't actually have to wait for a break.
So que the time series model, new and improved, 2.0. According to that, which has been updated as of today. SPY's current projected range, based on its overall trajectory since inception, is between 439 and 365, with a mean of 403.
That means, 403 is our expected price right now based on SPY's historic growth rate, with a max deviation of up to 439 and a min of down to 365.
Where SPY has topped, we were outside of this expected range. This was the same leading into September of 2021, we surpassed the expected rate only to experience a massive correction/bear market that started in January.
In October of 2022 we actually kissed the anticipated low range. The low range as of October 2022 was 348, and we just kissed it and bounced aggressively. The highest high in the range as of July 27th (our current top) was 438. We saw rejection and are now hovering in the 438/437.
What is more interesting, is using my old model that hasn't seen any love since around October of 2022, it plots our current range as of this very day at 438 with a mean of 403. (Lol, isn't it just so annoying? Had I been paying attention, we would have known ages ago).
So for those who call this bull rally a "correction". That is technically correct. We corrected back to the top of the range from the very bottom of the range. And now we are at the top of the range and should, theoretically, see a correction back down, at least to the mean of 403.
403 seems to be the sweet spot as both the Old and New model are saying 403 should be the mean at this time. In looking at the math comprising the two different models, they are pretty similar. Which is to be expected as SPY has not fundamentally changed. It is still operating on its normal growth trajectory and route. This is good, because there hasn't been any major fundamental change in SPY's trajectory.
Time Series Cavet
Now there is always a but with things. The reality is, stocks will exceed ranges all the time. This is why we have "corrections". In September of 2021, SPY had exceeded its growth range by... a lot...
This was the first time SPY had really surpassed its expected growth range from what I can see. But other stocks, like NVDA and MSFT, tend to have frequent jumps outside of its range, only to see some corrections later.
But SPY surpassed its range, likely owning to the fundamental and economic conditions supporting such an unexpected and accelerated growth at the time. Its likely we don't have the same conditions required at this point to sustain such an accelerated growth rate beyond its anticipated trajectory, but I can't be sure because I am not a fundamental analyst.
We ultimately did a mean reversion after September of 2021 back to the anticipated range and all was well. You could very well have shorted in September of 2021, with the TP being a mean reversion to sub 390, and been successful. Assuming you had unlimited time in your short position and were willing to wait about a year to reach it (this is another reason I prefer the threshold method, as its more of an immediate representation of PA than time series). But timing is everything in general.
So then we have to ask, does the PA and chart support the time series assessment, that we are capped out?
And for that, we have to look at a few things, that I have already pointed out. First, we have a really nasty monthly candle:
The only month that we saw this type of nasty engulfing candle lead to a higher high the following month was back in 2021, again the year we were exceeding ranges and had a bit of a different economic .. lets say... objective.
Next, the current volume composition of SPY resembles previous volume compositions of tops:
The green lines correspond to local bottoms and the red to tops. From what I have gathered from running some assessments (albeit this is still under review as a reliable method), the degree of the sell is proportionate to the ratio. The lower the ratio, the bigger the sell, the higher the ratio the stronger the rally.
We are at a ratio of 0.59 and here are some examples of the sells that have followed:
(Note I am only counting from when the signal was seen and not from the top of the sell).
Not all incredibly dramatic, some are just minor, but the majority seem to be at least, on average, about 6 - 8%. Which we have almost achieved at this point. But we remain in the topping zone at this point.
Any other indications?
I briefly talked about this, but SPXS and SPXU are doing really well defined, inverse head and shoulder patterns on their daily charts:
SPXS:
SPXU:
The only time I found something remotely similar was 2022 and it wasn't as pretty:
So I am not sure how to take this, as it seems to be a very unique case for SPXS/SPXU/HSD (for you Canadians).
And now for the Q&A:
So is it a short?
Maybe. I would prefer to leave it to you to make up your own mind.
I am trying to be as unbiased as possible and just present what I am seeing; however, this is already biased because everything I am presenting is short focused. But its just, it's what the evidence is showing right now.
Can we go higher?
Absolutely! Like I said, the range can be exceeded. It has before. It will eventually lead to a correction though. That much is sure.
What would be a reasonable TP?
403 is the mean at this point. In the next 50 days, the mean increases to around 415. 415 is the second low target on the 3 month timeframe. So I would say, if we were going to get follow through, between 403 and 415 to the downside.
Will we have another bear market?
At this point, selling from here would be a correction or a mean regression.
I don't buy the whole "economic catastrophe" narrative. Selling down to 403 would be a simple regression to the mean. Selling all the way down to 380 would be an overshoot to the low end of the range.
The economic conditions may just serve as the catalyst and scapegoat for an otherwise necessary correction.
I think that is it everyone.
As always, thanks for reading and safe trades and please feel free to leave your questions/comments and thoughts below!
Take care =-)!
Premium indicators and content have launched! Get access at: www.patreon.com/steversteves
