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Shortly after closing out the previous FAS short trade for a 29% gain in exactly one month, with a nearly perfectly timed exit on the morning the big August 24th meltdown, FAS (3x long financial ETF) was once again posted as a new short setup in this post last week & went on to trigger an entry later that day when XLF dropped below 22.95.
I’ve had a lot of questions about the 5DMA Three Day Rule, particularly as SPX bounced yesterday, and I feel a need to explain my position here. This stat has somewhere between 40-60 instances since the start of 2007, and not one of those has failed to make target at the retest of the previous low, with 95%+ then making lower lows from there. Does this mean that I know that 1911 will be retested? No. Does this mean that I believe 1911 will be retested? No. I just consider that on the history, such as retest is very likely. No stat is perfect and one day this stat won’t deliver I’m certain. The odds of that being this time however are low.
Nothing is certain. No-one ever knows what will happen. If you need to talk to someone who can talk with certainty and belief about the future then you need to be talking to a priest rather than an analyst, and that priest is unlikely to be telling you where SPX or oil will close tomorrow. Everything about the future in the markets is a matter of relative probabilities until it happens. The probability of this stat failing here is very low, but absolutely not zero. Anything can always go the other way. Nonetheless on the balance of probabilities I am expecting to see that test. SPX daily 5DMA chart:
