Click on Chart to Enlarge
Based on multiple back-tests of different data sets (price, volatility, put/call ratios), I would estimate the probability of a close above today's close within the next 5 trading days to be about 90%.
The chart above shows the average price action over the next 3 days in terms of 10 day ATR.
These projections are based upon the price set-up of 3 consecutive closes below the lower bollinger band on SPY.
- The average close 3 days ahead has been about +0.9 ATR.
- The average maximum gain over the next 3 days has been about +1.85 ATR which would put price up around yesterday's low.
- The average maximum loss over the next 3 days has been about -1.0 ATR which is about 4.00 on SPY currently.
- Also of note, for the same set-up, 50% of past instances filled the gap open down within the next 3 days. So about 1/2 the time we could expect SPY to trade back up to 292.62 or higher within the next 3 days.
Now, on a longer term basis this looks very much like a bull trap topping process, and there are multiple long term price and sentiment divergences to suggest that a bull market high could be in on this recent failed breakout to new highs.
My personal stance is to continue to trade with a bearish perspective as long as new shorter term technical sell signals occur below the recent highs.
Pete
