Might seem like a lot going on here, but every line has a foundational purpose, I labled but will give brief overview below:
- For starters, I don't believe in merely using an indicator for the sake of it - ONLY if it has demonstrated sufficient performance and reliable on the name you are trading in the recent past (last 6 months minimum). What I look for is a capture rate over 50% (this means thats it captured over half of the big moves on the recent swings).. this is actually hard to find for SPY but RSI met this criteria with a capture rate of 51% and a reliability rate of 86% (the average comparative indicators had around a 22% capture rate so RSI significantly better since September). Until RSI purple crossed above yellow my bias is bearish, but I do have the conviction based on its performance to trade bullish when we see the cross.
- Next I ran a back study on which trading patterns were most effective in capturing SPY moves since September: In order they were Wolfe Waves (both bullish and bearish), harmonics, gamma inversion (translated to SPY levels based on SPX500USD gamma mechanics).
- I drew in the recent wolfe waves, 3 major since Autumn 2021.. all hit their 1-4 EPA by ETA (highlighted circles in chart). There is a recent bullish wolfe wave that completed which has a 1-4 EPA = 455 @ ETA = May 2nd (could be May 4th, either way time is running out to make quite a big run to that resistance.. but don't count it out. Would need an explosive RSI cross bullish by Apr 27th-ish). The options are not priced for this kind of move in that time but mathematically based on structure it is a possibility.
- SPY recently completed a bearish Bat harmonic and hit the initial target retracement at 441, would not be surprised if it hit pt2 retracement at 415.. but at same time just above that is a support region which has acted as a bounce zone last couple times it got to current levels. I am noticing a potential new bearish harmonic forming with a C in between the 415 and current level, if that completes the D is actually around 473. That would shake things up a bit. There was a failed Elliot Wave leading diagonal that made it to wave 3 around 460 and became invalidated when a potential wave 4 retraced too low recently. If that would have remained valid the wave 5 projevtion was around 473, so that level isn't so random. We will call that a best case bullish scenario near term. There is now a possible EWT leading diagonal down that is in wave (III) and will be valid UNLESS SPY bounces to 440s.. If not wave 5 will be around 400 (we will call that best case near term bearish scenario).
- That leaves us with gamma inversion around 447-448 - under that level there is net negative gamma in the SPX500USD which makes for an extremely volatile environment. This could be a blessing actually for bulls because its the only mechanics I can see (other than a possible squeeze) that would allow an explosive enough bounce tending toward the gamma inversion - such a reversal would invalidate bearish EWT count and bulls could take it to 450s on that momentum.. if it really got going 473 not impossible... only to set up nicely for explosive downside as this evolving bearish harmonic completes.
Stay tuned, will we go to 400 or 455-473 first? Gotta play this baby as it goes. First thing I am looking for is an RSI cross bullish as it approaches oversold. If RSI yellow catches up first though don't mistake that for oversold - rather that would be very bearish (strength not over-extension) and they'll tank it to 400 fast. I can say I am leaning more near-term bullish but this environment is hostile (aka exciting lol).
NOT FINANCIAL ADVICE (but if you're curious I am personally leveraging the volatility with OTM calls and puts, not financial advice so that specific strategy if you know you know).
Best,
Ezekiel
- For starters, I don't believe in merely using an indicator for the sake of it - ONLY if it has demonstrated sufficient performance and reliable on the name you are trading in the recent past (last 6 months minimum). What I look for is a capture rate over 50% (this means thats it captured over half of the big moves on the recent swings).. this is actually hard to find for SPY but RSI met this criteria with a capture rate of 51% and a reliability rate of 86% (the average comparative indicators had around a 22% capture rate so RSI significantly better since September). Until RSI purple crossed above yellow my bias is bearish, but I do have the conviction based on its performance to trade bullish when we see the cross.
- Next I ran a back study on which trading patterns were most effective in capturing SPY moves since September: In order they were Wolfe Waves (both bullish and bearish), harmonics, gamma inversion (translated to SPY levels based on SPX500USD gamma mechanics).
- I drew in the recent wolfe waves, 3 major since Autumn 2021.. all hit their 1-4 EPA by ETA (highlighted circles in chart). There is a recent bullish wolfe wave that completed which has a 1-4 EPA = 455 @ ETA = May 2nd (could be May 4th, either way time is running out to make quite a big run to that resistance.. but don't count it out. Would need an explosive RSI cross bullish by Apr 27th-ish). The options are not priced for this kind of move in that time but mathematically based on structure it is a possibility.
- SPY recently completed a bearish Bat harmonic and hit the initial target retracement at 441, would not be surprised if it hit pt2 retracement at 415.. but at same time just above that is a support region which has acted as a bounce zone last couple times it got to current levels. I am noticing a potential new bearish harmonic forming with a C in between the 415 and current level, if that completes the D is actually around 473. That would shake things up a bit. There was a failed Elliot Wave leading diagonal that made it to wave 3 around 460 and became invalidated when a potential wave 4 retraced too low recently. If that would have remained valid the wave 5 projevtion was around 473, so that level isn't so random. We will call that a best case bullish scenario near term. There is now a possible EWT leading diagonal down that is in wave (III) and will be valid UNLESS SPY bounces to 440s.. If not wave 5 will be around 400 (we will call that best case near term bearish scenario).
- That leaves us with gamma inversion around 447-448 - under that level there is net negative gamma in the SPX500USD which makes for an extremely volatile environment. This could be a blessing actually for bulls because its the only mechanics I can see (other than a possible squeeze) that would allow an explosive enough bounce tending toward the gamma inversion - such a reversal would invalidate bearish EWT count and bulls could take it to 450s on that momentum.. if it really got going 473 not impossible... only to set up nicely for explosive downside as this evolving bearish harmonic completes.
Stay tuned, will we go to 400 or 455-473 first? Gotta play this baby as it goes. First thing I am looking for is an RSI cross bullish as it approaches oversold. If RSI yellow catches up first though don't mistake that for oversold - rather that would be very bearish (strength not over-extension) and they'll tank it to 400 fast. I can say I am leaning more near-term bullish but this environment is hostile (aka exciting lol).
NOT FINANCIAL ADVICE (but if you're curious I am personally leveraging the volatility with OTM calls and puts, not financial advice so that specific strategy if you know you know).
Best,
Ezekiel
- uppermost green horizontal ray (473 level) text meant to type Projected *Bearish* harmonic
- 441 level red horizontal ray text meant to type Completed Bearish *Bat* not Bad.. my bad