Click on Table to Enlarge
The current sell off in SPY has reached a panic level that puts it in an elite class of sell-offs.
While fear is very high like it is now, it often FEELS very risky to buy stocks.
And certainly prices could go lower.
HOWEVER, the points of very high fear are often the greatest points of short term opportunity to go against the crowd.
The above table shows evidence of this. That shows past instances in SPY when:
- Gap down is more than 2%
- The last 3 days were down previous to the gap down
Note the huge return from columns AK and AL,
This strategy would be buying at the open today and then selling at the close tomorrow or the following day.
In addition, in these past instances there was 100% chance of a higher close within the next 5 trading days relative to the close TODAY.
Now since volatility is very high, and there are no guarantees, the question here is not so much whether the odds favor a short term buy. They clearly do.
The question is risk management and How Much? to buy.
If not using stops, then bullish option spreads or a naked call option could be used.
If going long the equity, then I like to use the leveraged ETF like SPXL but only use a portion of the account. This should really be part of a defined plan.
For fun here......if you are reading this, do you think prices will rebound and make a higher close within the next 5 days?
Or do you think this time is different?
Comment either way if you have an opinion!
Pete
