Sunday, September 20, 2015

Another Scan Suggesting Profitable Opportunity for Buying Puts 9-18-15

Click on Stats to Enlarge

I ran a scan tonight looking at times since Sept 1995 in SPY similar to our current market indicator set up and trend.  The filters were:

  • 63 day EMA is down
  • 252 EMA is down
  • Weekly MACD is below signal line (sell configuration)
  • Daily % D stochastics is greater than 75
  • Today is a cross down of %K below % D in the daily stochastics (14,3,3)
Looking at the 2 month future results, the MAX loss was greater than 2 times the MAX gain in SPY.

And in the options, buying an ATM put option and holding until expiration would have been a winning play with a few real big winners which basically occurred in the context of bear markets, where a rally had occurred and stocks sold off hard in a continuing down trend.

The EV of the 2 months ATM puts was 45%.  So this fits right in line with the recent scan I showed where the stochastics was overbought in a downtrend.  

So basically from the stats there seems to be a roughly 50/50 chance of a substantial sell off.  If there is a sell off, it may be substantial.

In follow up to the recent comparison of our markets to past "crash" markets over the last 20 years, there has been a pretty consistent time pattern of the post crash retest of the crash low.  And it has occurred in about 5-7 weeks in the 5 instances I highlighted in the linked post.  That time frame would put us in mid October, right around options expiration.  And that time frame would fit with an ideal seasonal bottoming time frame.

Given the technical indicator set up, it may be expected for a sell off to new lows below Aug 24th in SPY, followed relatively quickly by a rally attempt.  I would anticipate the 177 level on SPY as being a Fibonacci support level if 8-24-15 low is broken.


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