SPY Multiple Time Frame Stochastics Short Set-Up

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Currently SPY has broken out of the small triangle shown in yesterday's post.  It appears set to test the 198.40 harmonic zone.

As I type, there is a developing multiple time frame stochastics set up which appears to be setting up an ideal short as price reaches this harmonic zone.

• 5 min overbought
• 15 min overbought
• 30 minute overbought
• 60 minute likely overbought later this afternoon
• Daily nearly overbought today; possible overbought tomorrow

So if signs of bearish divergence on the 60 minute and under time frames show up without last Wednesday's high being exceeded, that seems to provide a low risk entry for a short position with a possible stop above Wednesday's high.

Even if Wednesday's high is exceeded, the multiple time frame analysis still suggests that the short term is basically overbought within a weekly time frame downtrend where stochastics has not yet become oversold.

Remember the FOMC announcement tomorrow.  This will likely bring some volatility into play tomorrow afternoon and beyond.  

Pete

Further Details On SPY Short Set Up 9-8-15

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I ran one more filter on the data from today's short set-up, and this made a huge difference suggesting a more pronounced downside, and lasting further into the future.

The additional filter I added to the scan was that the close of today's session was in the upper end of the day's range (above the 80% mark of the day's range).  So the gap up was followed a strong close.

Again this was in addition to a daily MACD "down" and the >1.5% gap up.

There were only 17 instances of this with the closing returns 7 trading days into the future shown above.  (Data only goes back 20 years).

The MAX loss versus MAX gain was greater than 2:1 in favor of the downside in the time frames out to 10 trading days ahead.  And the average closing return jumped from 0.5% profit on the short to ~2.5% profit on the short at 8 days out.

So if SPY closes strong here, as it look likely to as of 3 pm EST, then that would argue for even greater downside expected over the coming days.

For disclosure, I purchased an Oct 196 put this afternoon.  There is not a clear option limit target here, I will likely place an OCO order for stop and a limit gain after I see a few days of action.  But I am prepared for the possibility of a 100% loss on this trade, even though i do not expect to take it.

Pete