After writing this, it was apparent I was talking through my thought process in writing what amounts to stream of consciousness:
The market has gone down to second support at SPY 219 this week. I am now trying to determine if we can bottom in here and make a second run at 222 over the next week as things can get confusing due to the coincidence of options expiration and the Fed meeting with its likely rate increase, which occurs on 12/13-12/14. The Fed could wreak the normal positive options expiration week this month. I am interested in hearing others takes on what will happen, but I am looking at one election history chart that appears to be down into expiration during election years and proceeding down into the end of the month. A second chart of the same ilk which shows a new high rally that goes down into expiration and rebounds to new highs into the end of the month. Schaeffer's recent case study on 15 days of IWM upside says we are down into this last week and next and positive after that.
From candle sticks, one has on SPX an inverted cross with inside day up after a solid two down days. That could indicate a potential turn as a harami cross or a concealing baby swallow in process (without gap down). It is normally more positive if the day following the inside day opens negatively. The harami pattern could gap and take off to the upside. The second potential pattern would imply a gap opening higher on Monday that opens above Friday's high and sells off all day to engulf Friday's result. If we bottomed in gold, are we likely to see a move further down in SPX, if GLD rallies Monday, which some predictive software says is a strong day in GLD. Or is GLD going to start to rally with the SPX? Also Monday is the first Monday of the month, which is normally very positive for SPX. $NYMO is pausing at the zero line, in keeping with a potential retrace of the move down. So there are numerous potentials in place going in both directions. I only see slight divergences in SPX on the 1 min and 5 min charts with the market still above Mr. Dev's magical moving average (positive for rally).
So with all those possibilities in place, I see a potential rally on Monday more likely if we open lower to result in a high this week that sells off into the Fed meeting. I am hopeful that the market can rally after the Fed meeting into the end of the month. If we do bottom on Monday, history implies we don't get lower than Monday's low on Fed Tues.
If we gap open above Friday's high on Monday, I will be on the lookout for an all day sell off into a new low that takes place on turn around Tuesday and is, then, the low moving forward into making a new high this week.
If Thurs was the low, a small gap open that retraces on Monday and stays above Friday's low or goes lower, but puts in a longer time frame 15 min divergence on Monday AM could be the low that forms and turns around on Tues.
If we trade below 219 for more than 2 hours on Monday, I would take we are headed lower to 218 for more serious problems. Ideally, I can conceive of an OOPS open with a gap lower that comes up and crosses the Thurs & Fri lows and basically rallies all day Monday to mark the bottom. I was expecting VIX = 16 on this move down, which would fit with a lower open on Monday.
We will likely see the Italy result dominate which way we open on Monday and take it from there. From my perspective, if Monday is the bottom then put spreads should be opened early for the options expiration or the remainder of the month. Otherwise they will be lower on Thurs or even a week from Tues, and should not be opened until then. I thought I spotted a bottom in PYPL on Friday and opened a spread at 38/37, so I am leaning bottom based upon that action and PYPL's relative strength throughout the day. I also have several open put spread orders in JWN, CVX, MSFT, & NVDA at lower levels that I have in place to trigger, if they reach support on Monday or later. Interesting two weeks coming.
