Monday, August 18, 2014

$SPY Bearish Convergence in 5-day Forecast and Trade Prospects

Market participants have been questioning whether the bounce from the August swing low is a 'dead-cat' bounce, or simply the start of a much larger continuation move higher?

For most of last week, ChartDNA was offering relatively bullish forecasts on the 5-day outlook, but remaining consistently bearish on a 5%:15% risk:reward trade. For example, on August 13th, ChartDNA projected higher close prices for each subsequent day against Wednesday's open (which so far has held true), but was suggesting there was a 75% (71-76% range) probability of a 5% loss ahead of a 15% gain, based off the same Wednesday open price!

It's unusual to see this level of bullish/bearish divergence in the projections, but today things did change with the 5-day forecast now falling more in line with a bearish outlook, with the trade forecast remaining poor.

The $SPY has opened brightly, with a small gap higher, but with the probability of a 5% loss so high (a projection of $186.96 from today's open), it's hard to maintain confidence the August swing low 'is' the actual swing low for the move down.

While last week's 5-day projections suggested the near term bounce had room to run, today's projection suggests this may be near an end, or at the least, a pause in the action.

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