Tuesday, September 13, 2016

New SPY/UPRO Trade

Based on the flip flop reversal pattern which occurred in SPY over the last couple days, there is a bullish trade opportunity based on the past similar occurrences.

I scanned SPY for

  • yesterday down more than 2%
  • today gapped down
  • today closed up more than 1%
18 occurrences came up, and the average close 7 days later was about 2.5% higher in SPY.  Now these stats are relative to Monday's close.  But early tuesday is down, and so the reward to risk may be even a bit higher which is good.

Now in this instance, I also see a qualitative pattern suggesting to me that SPY may make another move to new highs in the coming few weeks.  It would not surprise me if that ended the bull market though.

In this case I would suggest using a 5.5% limit sell order after entry on SPY, and a 5.5% stop loss order.  This can be entered as an OCO order if you can.  Exit the trade at the close of 9/21 if the limits are not hit. 

Most of the past instances occurred in bear markets where volatility was higher.  But the few that occurred in bull markets still showed a nice positive expectation.


1 comment:

  1. Since UPRO is a 3x bullish etf, the stop loss and limit orders would be 16.5% rather than 5.5% which is basis SPY.