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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
I looked at the scenario where tomorrow gapped DOWN. And found out of 22 instances, 19 of them traded into positive territory during the trading day. So that suggests that a gap down tomorrow could be a day trade to buy the open and sell at a fill of the gap. Of course this general data can be used in conjunction with sound trading practices and risk control to develop an intraday trading strategy to capture the expected move.
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