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The recent correction of the S&P500 had many shorters and Bears wringing their hands, hoping to see a Bear Market that will make them a lot of money.
However, looking at our proprietary, quantitative S&P500 Futures LONG model, it does not seem there is all that room to go much lower than the bottom the market has printed some weeks ago.
The ESZ15 WEEKLY chart below shows what could happen if there was a new dive to lower levels.
Hi Slopers, some quantitative analysis of the e-mini S&P500 for you here, courtesy of the TK+RL team.
Yesterday the market tanked and the drop continued overnight, almost reaching our first valid support area around ~2060. The news says it’s because of the Chinese Yuan depreciation and we do not what to discuss that, but only underline the fact that we had predicted lower prices for a while, without knowing what the catalyst would have been and that is how RL works: statistical models can analyze PRICE and TIME extension and tell us where the next market turn may happen, removing the need to know why. The constant search for a reason to explain the market action exposes the investor to both the risk of wong bias and wrong analysis (technical, fundamental, astrological, you name it).
After the recent “mental waterboarding” (as some media called it), Greek Prime Minister Alexis Tsipras is now on the run, in search of his forgotten identity (the one where he had promised to terminate austerity and reject Greece’s creditors proposals):
In the meanwhile, the E-mini S&P500 (ES) has reached interesting OVERBOUGHT levels. If the Greek Parliament rejects the deal signed by Jason Tsipras, oops sorry, Alexis Tsipras, the market may tank again from here, this is why it’s important to see what our SHORT model (below) is saying.
Yesterday the market tried some recovery, amidst a flurry of news coming from Athens, Brussels and Berlin, regarding the risk of Greece defaulting on its debt. The bounce had retracted completely by the end of the day, but overnight the market is trying again the same rebound, so today the Close may be positive.
In the ESU15 DAILY chart below we can see the next valid support and resistance levels and we have highlighted the fact that the market will reach 100% odds to go SHORT DAILY at the 2091 level. This means that based on our DAILY model reading, the market is already OVERBOUGHT and marching towards a 100% OVERBOUGHT DAILY condition. A new pullback is nearly sure to happen before then. It is hard to say if it will be another sharp pullback or just a small one followed by higher prices. We can only say that when the odds are good, LONG or SHORT, you must take action to profit from the upcoming reversal.
If you have been following our advice on May 15, 2015, you may have made some good profits on the latest correction (see chart below).
Here is what we wrote on SOH, that date:
Now a good, new going-SHORT opportunity is coming up in these days […]. The ESM15 has almost reached a DAILY area where the odds to go SHORT are quite good: 2127.25, 63.82% overbought. WEEKLY and MONTHLY time periods are not supporting the trade, meaning that this is probably only a quick swing trading opportunity, however things may change if/when the market reaches the ~2140 price area. From there also the WEEKLY and MONTHLY overbought gauges will go above 50% in value and thus create a better-than-a-coin flip edge for the SHORT trader. (more…)
