Saturday, January 15, 2011

SPY - Historical Perspective

To follow up on my last post, as we enter into the correction zone, what can we expect.  The first chart I created looks back 11 years to give us some perspective.  The findings are actionable; The market actually goes down during each of the first quarters examined. On average the moves are large enough and long enough to make a trade worth my while (36 days, 13 SPY points, 14% move). 

My view is this correction will be longer and deeper than normal, as the price to 200 day is extremely stretched, and the run up has been particularly persistent, and calm.

Looking at the third chart informs me when I should make my move.  Initial position when either MACD crosses or Stochs break the 70 line, and full position when both are triggered.  Looking at the second chart, we find obvious support and a rising 200 day in the same area of past historical correction percentages.

So my trade is a 14 point March debit Put spread.  I will use an initial stop loss, then look for a hammer or swing low to adjust or exit my trade.



No comments:

Post a Comment