Tests are saying 6 day short, 3% target on $SPX

6:43Am and we have a nice gap developing.    We are post OPEX Monday, a day with terrible seasonals, in the middle of the peak of Q2 earnings seasons with a deteriorating economy that is on a verge of a double dip recession lead by housing and the bulk of the economic news this week is housing related  starting today at 1pm with the NAHB housing index.   This week should be exciting.

 

I published a little research on Sunday looking at whether  buying the close or shorting the close on Friday was a better trade. [Trading a greater than 2% down OPEX Friday close].  The answer was surprisingly to go long. The trade was go long, hold for six days or a profit target of 2.75%.  A 75% trade for a positive outcome.

 

I reran the numbers now with this morning’s  gap opening to find out the best way to trade the gap.  What are the optimal parameters?.. The gap has taken away the long advantage and now the trade is to short the open hold for 6 days or a 3% profit with an 87.5% probability for success.  As a note of warning the incidents are getting few an far between.  Our 12 initial OPEX 2% down days since 1990 went down to only 8  which had a gap open on the following Monday.


Quote of the day:
It’s kind of fun to do the impossible. – Walt Disney

 

Chart

Score

 Day-1

Change

40 DPI

-6

+0

-6

52 WNH

-6

+2

-8

10 DHL

-4

+0

-4

Total

-16

+2

-18

 

I released the breadth charts over the weekend on the website and they look good if you are cheering for a test of 1000 $SPX but terrible if you want to try and summit the top again. Especially disappointing was the 40 DPI crossing of the 20 DMA on the RUT and NASDAQ.   This indicates returned weakness.  We like to see a 2nd day to confirm but the fact that we are getting chopped to pieces here as the market decides whether or not it is going to rally is extremely frustrating.

 

 

$SPX chart:

 

We had rallied about 8.5% from the bottom  up to 1100 but a number we were unable to break through (or even print) and have now pulled back about 3.25% from 1100 to close at 1065 on Friday.  1060 area is about the 50% fib level so the bulls need to make a hold there and we will place our red line there today, especially with the gap opening this morning that if holds should get us to about 1070.  The bulls really only have one goal this week and that is to rally back up and break 1100.   The bears on the upside want to cap any bullish price action at 1080-1081 and then eventually bring it down to below 1060 then 1020.  Ouch..

 

That is how the charts are setup for today.  Break and hold above 1072 bulls get 1 point.  Above 1080 2 pts.  A hold below 1072 for the bears is a point and a close below 1063 is 2 pts and a close below 1059 we will award 3 pts. We will see if the bulls are ready to tap out today.

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