SPY: The Catastrophic Demise

LOL,
So yeah, I will spare you the deets because we can all look at a chart and see the obvious, LOL!

Under these circumstances I wonder if a recap is even necessary. But what the heck, gotta keep it consistent.
So;

Recap:

- Trading range was 411 - 431. Initially we bounced off the low of the range and this is where SPY initially found support. This made me slightly intra-day bullish biased on most of the week, if you follow my ES ideas, my TP's were all the bullish math target prices which I think were all hit this week with the exception of 1. Can't really remember.
- Going into Friday, I was actually bullish, but not swinging anything. Managed 1 successful long trade and then it kinda went down hill from there. Stop outs were had but thankfully nothing major. And this was recovered by good ol reliable BA. Man, I really love BA stock!
- The market responded very well to PCE numbers which were slightly improved, it started off a little tempestuous and choppy, sold down a bit to immediately get bought back up. Then at 10, it went absolutely haywire! And the rest is history.



So what actually happened on Friday?
I think some see this as 200 MA rejection maybe, or so I read on TV. My thoughts of what happened here and if you follow my ideas you would know that I was kind of anticipating that key tipping point (or catalyst) the market was looking for to do the next leg down. I believe this probably was likely it. Powell's speech, while some argue didn't tell us anything we don't already know, actually told us a lot more that we didn't really concretely know. The Feds have been responding to monthly data and reports and have been framing things differently. The information released may not have been overtly new, but the tone was indeed 'new'. I suppose most categorize this as the feds being Hawkish or Dovish; however, IMO, the tone Powell used in the words he chose were neither Hawkish nor Dovish. They were all out nuclear! Very aggressive language was used and very aggressive statements were used, which were kind of new as Powell has been traditionally firm, but a little, I guess, wishy washy with some things in his approach. We learned in Kindergarten that words expressed in different tones can convey different messages. This is what I see as happening here. Powell left some things in the air, but his message was clear and deliberate that the Fed is getting aggressive and that people, busienss, economy etc. etc. WILL suffer. It, IMO, was a complete 180 from the soft language that the Feds have traditionally been using this year.

Alternatively, if we want to look at this from a more technical perspective, if you remember a little while back, maybe a couple weeks ago, when SPY started to break out of its time series range AGAIN, and I said this usually ends badly with a really massive and sustained, aggressive drop out of nowhere.
Well friends, here we are. Ironically, SPY fell right back into its time series range on Friday (capped at 406).

So what's next?
Under these types of unique circumstances, TA and even math can only be driven so far. We have to think of the logical consequence of this type of news and that is a very, very bad economic outlook.
That said, we can look for technical phenomena like technical bounces (oversold bounces) and we can look to math and TA to gauge where the market may find support and where the stock naturally should rest based on its historical trading history.

Ultimately that means we should be looking to touching the 390s very soon before any kind of like, interesting bounce happens, let's say.
But for why you likely tuned in, let's see what the math says:

Trading Range:
Okay so trading range for next week is a tricky one. Because of the dramatic drop that defies most of SPY's trading history, it does increase my standard of error in predicting here. Also, because this is notably fear driven, we can anticipate further panic selling which tends to skew things a bit much. There is very little I can do to correct for this because I don't know, or can't remember days that I would deem ''panic sell worthy' to cross compare. I am one person and don't have a whole hedge fund or bank with multiple statisticians and programmers so bear with me on this :p. But I will give this a shot. So best projections with the smallest error paint a range of roughly 394 - 427.
Because of the risk of error, I cannot say that breaking below or above this range is any conviction in bearishness or bullishness like I usually do. So please approach this range cautiously. If we do bounce off 394, I wouldn't personally take that as meaning this is actually bullish. I do think that 394 also correlates with some strong technical support, but yeah, just keep this in mind if you tend to use my trading ranges like I do.

To Bounce or Not to Bounce, that is the question?
Will SPY bounce on Monday?
Probably not, no. And even just looking at this from a technical perspective, I like to reference the Z-Score (see main chart above) and even though SPY did a very dramatic drop, its Z Score isn't even in he negatives. Meaning that there is still a lot of room for this to drop. Furthermore, its extremely rare to see this kind of aggressive selling followed by a big bounce. This kind of waterfall selling just triggers massive panic selling and I think dip buyers or bounce buyers are a little early here. I think, personally, bounce buying should happen in the 390s, but approach it cautiously.

But enough of my OPINIONs and let's see what the math says for Monday:

So the highest probability based on SPY's currently technicals is for SPY to open below Friday Close on Monday. Probability for this is roughly 0.26 vs the probability of opening above is 0.20. Very close in terms of probability, but def a preference for a bit of a gap down.

It is likely that SPY will see 401 on Monday. This actually has a remarkably high probability based on current RSI, Stochastic and Z Score probability assessments.
The next low projected would be 399 but there is admittedly a lower probability of this (But still actually pretty high considering).

End Result and Long Term projection:

So bears have been pretty early to the game over the past 2 weeks I noticed. I noticed a lot of bearish posts when really SPY had some bounce left. I, as a day trader, like to capitalize on ALL of the moves and like to enter where my positions aren't going to immediately go red so I just can't relate to these crazy swingers holding through massive red :p haha (Jokes, mad respect for swingers! I struggle with the discipline to swing unless I get a good entry). But now is the time to convert over unfortunately. Your immediate targets are the 390s. Going with the math range, I would place a target on 394.

I am actually swinging a short position I entered on Friday. I entered around 410 once I realized it was looking grim (with SPXS), then FOMOed 500 more shares of SPXS at around an avg SPY price of 407 when I realized SPY was absolutely TOAST. My ultimate goal here is to swing to around 395. But will probably profit take some on Monday. Provided I am not abysmally wrong and SPY doesn't just gap up to 430 on Monday ;). Also I plan to keep a running short position from this point on, scaling in and out more on bounces and drops (why I entered SPXS and not Options).


Anyway, that is it for my long wordy post.
Thanks for reading!

Comment your questions/critiques and comments below!

Trade safe everybody!