Era of mean reversion, SPX year timeframe
Hi traders,
I'm sure everyone who watches markets has made some kind of chart like this over the past six months, but I thought I'd share for those of us more comfortable with reading price action rather than economic reports or the news (obviously one needs both to be a truly excellent trader or analyst).
I marked off with the pink vertical lines every low during a correction of SPX below its 21 year EMA (yellow line), before it started back up over the 21 EMA again. Soon after that low, the 21 EMA crosses the 21 year SMA of the Bollinger Bands (red line). Highs just before each of the pink vertical lines are marked by circles. The periods of both the correction low (pink vertical line) and the aftermath (21 EMA crossing 21 SMA) represent some of the toughest periods in recent economic history, at least as measured by this particular market.
NOT ADVICE:
From a trader's perspective, assuming we're starting to see another correction that will follow a similar pattern (i.e., a correction in which price crosses down over 21 EMA and hits a low before crossing back up), a reasonable target for SPX to cross down over the 21 EMA would be 2169, assuming 3:1 reward/risk. Corresponding stop-loss would be 4610 (NOT ADVICE). On this high timeframe I interpret that 4610 value not as any kind of actual stop loss for an actual trade, but as a rational expectation for the highest SPX level we can expect over the next few years during the correction. NOT ADVICE
On a (even) darker note, the CT moving average crossover indicator currently registers "impossible" for the 21 EMA to cross the 21 SMA. To me that suggests either (1) that a much greater drop of currently unknown proportions in SPX is required below the 21 EMA (i.e., below 2169) to bring the 21 EMA down to the 21 SMA or (2) a period of consolidation and slow drift toward the 21 SMA, in order to shrink the difference between the 21 EMA and 21 SMA. I suppose the former could be called a "hard landing" and the latter a "soft landing". In my opinion, the "impossible" reading on the CT moving average crossover indicator suggests the latter scenario is at least the more rational position to take, at this point, though I plan to be ready for either scenario, of course. NOT ADVICE
Good luck, everyone.
I'm sure everyone who watches markets has made some kind of chart like this over the past six months, but I thought I'd share for those of us more comfortable with reading price action rather than economic reports or the news (obviously one needs both to be a truly excellent trader or analyst).
I marked off with the pink vertical lines every low during a correction of SPX below its 21 year EMA (yellow line), before it started back up over the 21 EMA again. Soon after that low, the 21 EMA crosses the 21 year SMA of the Bollinger Bands (red line). Highs just before each of the pink vertical lines are marked by circles. The periods of both the correction low (pink vertical line) and the aftermath (21 EMA crossing 21 SMA) represent some of the toughest periods in recent economic history, at least as measured by this particular market.
NOT ADVICE:
From a trader's perspective, assuming we're starting to see another correction that will follow a similar pattern (i.e., a correction in which price crosses down over 21 EMA and hits a low before crossing back up), a reasonable target for SPX to cross down over the 21 EMA would be 2169, assuming 3:1 reward/risk. Corresponding stop-loss would be 4610 (NOT ADVICE). On this high timeframe I interpret that 4610 value not as any kind of actual stop loss for an actual trade, but as a rational expectation for the highest SPX level we can expect over the next few years during the correction. NOT ADVICE
On a (even) darker note, the CT moving average crossover indicator currently registers "impossible" for the 21 EMA to cross the 21 SMA. To me that suggests either (1) that a much greater drop of currently unknown proportions in SPX is required below the 21 EMA (i.e., below 2169) to bring the 21 EMA down to the 21 SMA or (2) a period of consolidation and slow drift toward the 21 SMA, in order to shrink the difference between the 21 EMA and 21 SMA. I suppose the former could be called a "hard landing" and the latter a "soft landing". In my opinion, the "impossible" reading on the CT moving average crossover indicator suggests the latter scenario is at least the more rational position to take, at this point, though I plan to be ready for either scenario, of course. NOT ADVICE
Good luck, everyone.
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