I have spent some significant time over the last couple days performing scans comparing the current market status to the past history in SPY. And from a number of different angles the stage appears set for a rebound in stocks.
The backtests have pretty consistently shown the 4-5 day forward time frame as having the most notable strength. So there are bullish plays here in both SPY options and the equity ETFs.
Now longer term, the results of the scans were not as consistent looking ahead 1-3 months.
My personal assessment from the technical side is that stocks still will fall a significant amount in the coming months. So the expectation may be for a short multi day rebound which will punctuate a continuing decline, and also may offer an opportunity to enter a bearish position on the rebound.
The backtests which I have run suggest that if SPY gaps down tomorrow, buying an ATM call option with the expiration at the end of the week would likely be a profitable play.
If there are any questions on specific ways to play this let me know.
Pete
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