Happy early new years everyone!
Thought I would take the time to wrap up the year with next year's levels on SPY as well as some trading related resolutions. I am curious to hear if you have any!
First of all, the levels. The levels have been updated as of today since we have closed off another year and the revised model is displayed in the chart. These are our annual levels and our annual GT. The Annual GT is nothing to ride home about, 462, but its a good point of reference IMO. There is a similar bearish one on SPX which essentially is the identical level to 462 on SPY.
We will also get the 3 month GT and the 1 month GT next month, but those require the open price to anchor us.
This idea is going to probably be my go to for longer term levels and targets. So for each 3 month target and such that comes out, I will update this idea with that. So that by the end of next year, this should be a cornucopia of play by plays of SPY trading throughout the year. Will prove to be interesting I think when we reflect on all of it at the end of next year.
Let's get to the targets, probabilities and which bias will likely prove to be the correct bias, whether that will be entering into a new bull market or entering into a bear market.
So the targets are in the chart. But there is something that we need to pay attention to, and that's the probability associated with these levels. Now, SPY has to small of a trading history to really do any major momentum or regression-based prob modeling. SImply applying the basic ATREE momentum model (the public version you can access yourself) on SPX, which has more history, yields these results:
Its interesting because last years Stochastics were also mixed. So perhaps signaling a predominate bullish sentiment but with a continuation of the whipsaw tendencies we saw kind of spike in 2023. Joy. Lol
But we can actually ascertain probability more definitively than this. How? Well, by creating an ARIMA model for the year. So I went ahead and pulled the previous 10 years of SPY's trading history and put it into R and had R develop and fit an ARIMA model for the next 252 (1 trading year) trading days. Here are the results:
What these results mean are:
80% Confidence that the true high of SPY next year will fall BELOW 591.
95% Confidence that the true high of SPY next year will fall BELOW 633.
80% Confidence that the true low of SPY next year will fall ABOVE 433.
95% confidence that the true low of SPY next year will fall ABOVE 391.
Put another way, the probability we see a low below 391 in 2024 is 5%.
The probability we see a high above 633 is 5%.
Furthermore, the high ranges are beyond the forecasted targets in the Pinescript model (SPSS model) above, but the bottom of the trading range is below the 391 target, which would be a 5% scenario.
So what does this mean?
Well, those who cling to a "The end is nye" are betting on a 5% chance of a drop below 391. This would be beyond the historic behaviour of SPY and would require a major catalyst. Not impossible but anyone who bets on a 5% chance is a gambler.
Same goes for the overly perma bulls thinking SPY will go to 700. No. Its just not likely.
But what this does mean is, we are not in a place to get long. Let us pullback, take out that 99 and start looking for maybe longer term longs around the 440s, ideally the 430s because then you are playing an 80% chance that you have longed at the yearly bottom!!! If we see 430 on SPY, fomo entire account! .. Lol jk :P
Because we will be opening relatively close to the annual high targets, historically this tends to lead us to an initial sell on the year followed by a reversal within the month.
Let's just take a gander at some seasonality data:
Monthly
This is on a lot of history. Let's narrow it down using my indicator to the past 3 years:
January's tend to be neutral and Febs bearish.
Let's look at the seasonal autoregressive model:
We are approaching the extreme outer bounds of the model parameters, a move back to the mean (regression to the mean) would be 447, which is actually my pullback target based on my volume top/bottom indicator I shared with you a while ago. So there is some confluence there.
So should the bullish thesis remain intact?
At this time, yes. It is wise to continue with the bullish thesis.
If this plays out according to projections and how I forsee it, we may get a bearish start to the year which for sure is going to get everyone thinking the top is in, haha. Its just one extreme to the next with people. But its just an expected and much-needed pullback.
For us to derail the bullish momentum we have going on right now, we really need a fundamental catalyst. And the fact that R is placing a bottom at 433 is pretty like, dramatic.
That said, if we break below 433, then its not good, the bearish thesis may indeed be the correct thesis because we are breaking that 80% probability, which means something is up and the market is making a sizeable deviation from normal behaviour.
Things to keep in mind, but we will take it month by month.
At the end of the day, don't fix what isn't broken. Blindly pressing the buy button has been rewarding millons. Don't fix what isn't broken. In 2021, it was my motto "You're never wrong when you're long",until you are. Then,when you are, you know there is a change and you step back and see what is going on. This approach generally leads to an initial stop out at the sentiment shift, but you're not going to keep trying, you're going to stop and see what's up and why it didn't work this time. Sometimes its a fluke and you can resume business as usual, others its an actual sentiment shift or change in market condition.
That said, I wouldn't be long into January per se and we need to be careful in February. I am expecting the year to start off a bit bearish. We may have some residual euphoric buying into Tuesday and Wednesday but it should get smacked down relatively soon.
Other scenario:
Another alternative though is we just continue right up to the forecasted high targets first. In which case, it is likely we will have a choppy 2024 because that setup traditionally leads to chop within the high range. Here are some examples:
And if we sink right down to the first low target, its a def long:
Key takeaways
As for my new years resolution next year, planned RPPI release is January! yay! I have only been promising it for like a year xD.
Also, I am a great day trader but a horrendous swing trader. I am going to make an effort to try and swing more and be more swing oriented. Its very difficult for a day trader to convert to swing trader and vice versa. I may do a small account challenge again into 2024 and share the trades/results to acclimate me to adopting better to swing trades. My biggest regret this year is not swinging more :(.
I am curious if you have any trading resolutions, if so feel free to share them below :-).
Safe trades everyone!
Thought I would take the time to wrap up the year with next year's levels on SPY as well as some trading related resolutions. I am curious to hear if you have any!
First of all, the levels. The levels have been updated as of today since we have closed off another year and the revised model is displayed in the chart. These are our annual levels and our annual GT. The Annual GT is nothing to ride home about, 462, but its a good point of reference IMO. There is a similar bearish one on SPX which essentially is the identical level to 462 on SPY.
We will also get the 3 month GT and the 1 month GT next month, but those require the open price to anchor us.
This idea is going to probably be my go to for longer term levels and targets. So for each 3 month target and such that comes out, I will update this idea with that. So that by the end of next year, this should be a cornucopia of play by plays of SPY trading throughout the year. Will prove to be interesting I think when we reflect on all of it at the end of next year.
Let's get to the targets, probabilities and which bias will likely prove to be the correct bias, whether that will be entering into a new bull market or entering into a bear market.
So the targets are in the chart. But there is something that we need to pay attention to, and that's the probability associated with these levels. Now, SPY has to small of a trading history to really do any major momentum or regression-based prob modeling. SImply applying the basic ATREE momentum model (the public version you can access yourself) on SPX, which has more history, yields these results:
Its interesting because last years Stochastics were also mixed. So perhaps signaling a predominate bullish sentiment but with a continuation of the whipsaw tendencies we saw kind of spike in 2023. Joy. Lol
But we can actually ascertain probability more definitively than this. How? Well, by creating an ARIMA model for the year. So I went ahead and pulled the previous 10 years of SPY's trading history and put it into R and had R develop and fit an ARIMA model for the next 252 (1 trading year) trading days. Here are the results:
What these results mean are:
80% Confidence that the true high of SPY next year will fall BELOW 591.
95% Confidence that the true high of SPY next year will fall BELOW 633.
80% Confidence that the true low of SPY next year will fall ABOVE 433.
95% confidence that the true low of SPY next year will fall ABOVE 391.
Put another way, the probability we see a low below 391 in 2024 is 5%.
The probability we see a high above 633 is 5%.
Furthermore, the high ranges are beyond the forecasted targets in the Pinescript model (SPSS model) above, but the bottom of the trading range is below the 391 target, which would be a 5% scenario.
So what does this mean?
Well, those who cling to a "The end is nye" are betting on a 5% chance of a drop below 391. This would be beyond the historic behaviour of SPY and would require a major catalyst. Not impossible but anyone who bets on a 5% chance is a gambler.
Same goes for the overly perma bulls thinking SPY will go to 700. No. Its just not likely.
But what this does mean is, we are not in a place to get long. Let us pullback, take out that 99 and start looking for maybe longer term longs around the 440s, ideally the 430s because then you are playing an 80% chance that you have longed at the yearly bottom!!! If we see 430 on SPY, fomo entire account! .. Lol jk :P
Because we will be opening relatively close to the annual high targets, historically this tends to lead us to an initial sell on the year followed by a reversal within the month.
Let's just take a gander at some seasonality data:
Monthly
This is on a lot of history. Let's narrow it down using my indicator to the past 3 years:
January's tend to be neutral and Febs bearish.
Let's look at the seasonal autoregressive model:
We are approaching the extreme outer bounds of the model parameters, a move back to the mean (regression to the mean) would be 447, which is actually my pullback target based on my volume top/bottom indicator I shared with you a while ago. So there is some confluence there.
So should the bullish thesis remain intact?
At this time, yes. It is wise to continue with the bullish thesis.
If this plays out according to projections and how I forsee it, we may get a bearish start to the year which for sure is going to get everyone thinking the top is in, haha. Its just one extreme to the next with people. But its just an expected and much-needed pullback.
For us to derail the bullish momentum we have going on right now, we really need a fundamental catalyst. And the fact that R is placing a bottom at 433 is pretty like, dramatic.
That said, if we break below 433, then its not good, the bearish thesis may indeed be the correct thesis because we are breaking that 80% probability, which means something is up and the market is making a sizeable deviation from normal behaviour.
Things to keep in mind, but we will take it month by month.
At the end of the day, don't fix what isn't broken. Blindly pressing the buy button has been rewarding millons. Don't fix what isn't broken. In 2021, it was my motto "You're never wrong when you're long",until you are. Then,when you are, you know there is a change and you step back and see what is going on. This approach generally leads to an initial stop out at the sentiment shift, but you're not going to keep trying, you're going to stop and see what's up and why it didn't work this time. Sometimes its a fluke and you can resume business as usual, others its an actual sentiment shift or change in market condition.
That said, I wouldn't be long into January per se and we need to be careful in February. I am expecting the year to start off a bit bearish. We may have some residual euphoric buying into Tuesday and Wednesday but it should get smacked down relatively soon.
Other scenario:
Another alternative though is we just continue right up to the forecasted high targets first. In which case, it is likely we will have a choppy 2024 because that setup traditionally leads to chop within the high range. Here are some examples:
And if we sink right down to the first low target, its a def long:
Key takeaways
- We should expect pullback to lead off the new year, if not right away, into February
- As of now, the bullish bias is the correct bias.
- Annual bottom range is between 433 and 391
- Annual top range is between 591 and 633
- Momentum probs on SPX signal a bit of a rangey, bullish undertoned market for 2024.
- Any catastrophic selling will need to be driven by a fundamental move. There are some brewing that needs to be watched, FOMC rate decisions, consumer spending, debt crises, GDP, inflation etc. The prospects of a recession and the probability of a recession are still a very real reality. You need to really watch how this plays out because this can shift the market on a dime.
As for my new years resolution next year, planned RPPI release is January! yay! I have only been promising it for like a year xD.
Also, I am a great day trader but a horrendous swing trader. I am going to make an effort to try and swing more and be more swing oriented. Its very difficult for a day trader to convert to swing trader and vice versa. I may do a small account challenge again into 2024 and share the trades/results to acclimate me to adopting better to swing trades. My biggest regret this year is not swinging more :(.
I am curious if you have any trading resolutions, if so feel free to share them below :-).
Safe trades everyone!
Comment:
SPY has broken out of the 3 month threshold range.
If we continue to hold this into tomorrow, then its just going to be a long to those high targets and we will likely take those out before any decline.
SPY has broken out of the 3 month threshold range.
If we continue to hold this into tomorrow, then its just going to be a long to those high targets and we will likely take those out before any decline.
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495 is coming based on the 99.
Very good news for them there bulls.
SPX is the same, bullish bullish bullish:
And the ANNUAL on SPX
Going to start building a long position with EQL (CAD HEdged SPY).