It was the third day and basically 3rd Friday that pattern deviated on the last day of the week from the matching pattern which was perfectly inline in the first 4 days! After capturing a perfect alignment we will be more cautious on the last trading day in the future!
Below provisional orange lines was shared last week on 4/28 as our 3-4 week projection;
and in yesterday’s session we acknowledged to reverse to bullish position for a single day after visiting a new low (lower than Thursday’s low.)
If we are right, we expect to see SPY reaching 257 or below tomorrow where we plan to exit all of our short positions including all puts. In that case, we plan to activate 1 week long call options targeting to exit on Monday most likely and we may open a small (%) UPRO position (max 15-20%) again targeting to exit on Monday. We expect a very similar day like today for tomorrow with lower lows and lower highs!
S&P reversed 1 day earlier and 1% higher than we expected! and we didn’t react as we were expecting a lower low today (especially with lower opening) and S&P was close to the upper bound we were projecting.
Before next week’s projections we want to do a self criticism here!
Today’s move burned our puts which were due today;
- this was the 3rd mis on the 12th option trade shared ( we are not happy with 75% success rate despite total of 934% return and our target success rate is +90%)
- all these three misses were due on Friday and 2 of these 3 mises were entered as next day expiring contract acknowledging high risk. Although, we acknowledged that we won’t share this kind of next day expiration trade ones, we did it again second time as 4 day perfect alignment was giving us very high confidence.
- 2 out of this 3 mises came on the last day of the week after 4 days perfect alignment. We will consider this in the future.
- Closing the profitable 5/4 and 5/11 puts right on time on Thursday was the win of the week _______________________________________________________________________________
So what does today’s move mean and what should we expect next?
Scenario 1: It was a single day deviation and it can align back by latest Tuesday to the below pattern. With everything moving 1 day fast we can expect the ending of this correction towards May 18 with a strong bounce.
A lower opening with a negative closing day will align back.
On a gap up opening negative closing or star ” + ” at the top and negative day on Tuesday will also align back to below projection.
Scenario 2: Although this seems to be a bullish scenario for a week actually this is a bearish one on the mid term. For long term bullish perspective, we really shouldn’t see a bullish week next week!
We will try to explain this on a weekly chart
SPY weekly chart
Let’s remember what we have said yesterday about today’s bar and afterwards;
We expect a very similar day like today for tomorrow with lower lows and lower highs!
What we were expecting on a daily bar “two similar bars with lower lows and lowers highs (both have long leg down fully recovered but closed negative!) is occurred on a larger time frame @ weekly pattern. (please see above weekly chart last two bars, and daily chart Thursday bar & our Friday daily bar projection)
and what was the continuation we have acknowledged?
a single bullish day on Monday, corresponding a single bullish week next week, remaining is actually the same pattern again daily vs weekly and perfectly fitting with out time patterns.
Let’s try to explain more; in this second scenario we expect a bullish week, followed by two pull back weeks until the week of May 25 with a low at range of 256-259, followed by 3-4 positive weeks to 270 and then a longer term decline.
As a short summary; for longer term bullish perspective we should see a decline below 250 in the next 2 or maximum 3 weeks and be done with it. Else if we see a bullish week next week, we believe this has potential to create much more pain in the next couple months before we see a real bullish reversal.
If you are bullish you don’t want to see a bullish closing week! We believe testing below 250 by latest May 25 is the minimum requirement for a bullish reversal to new highs!
So what will be our trade plan based on these two scenarios that we see?
On an alignment with scenario 1, at the end of Monday (A lower opening with a negative closing day or a gap up opening negative closing ) we will add to our SPY 5/25 260 puts. We will hold on to our 50% SPXU shorts. ( we have about 5% cash position and we can even add that to our SPXU position for the next 2 weeks)
On a bullish continuation day on Monday (scenario 2), we will exit 1/2 of our SPXU position to reopen higher. (most likely reopen towards the end of the week in this case). We will hold our 5/25 puts because in the worst case scenario, we still expect to see below 260 in the week of 5/25. We are planning to activate higher SPY puts for 5/25 towards the end of the week. The first 2 days of the week should give us good indication for the rest of the week but if it deviates from Scenario 1, we may have low clarity for couple days.
We give 2/3 chance of occurring for Scenario 1 and 1/3 chance for Scenario 2.
The monthly summary of our shared options is as follows;
Success rate: 9/12 with total return of 934%. Average return of trade 78%
Our portfolio was having an excellent week up until Friday. Because of our heavy short position we closed the Friday with -1.32 % performance while S&P had +1.21% day. Despite this, we closed the week with +1.16% total weekly performance vs S&P’s -0.2% weekly performance.
We are short S&P with SPXU (50%), long on LRCX (15%), MU(15%), ESIO(5%), SWIR (5%), FIT(5%).
We have total of 150% SPY short position vs 45% stock holdings.