SPY: Week of Sept 16

4 days agoSwitching it up with a written post this week.

It has been a very interesting market lately. Bear market volatility with a continued bull market undertone.

The volatility has been stemming, likely, from the onslaught of economic data that has whipsawed the rate cut probabilities as fast as it has whipsawed the price action.
As of now, we are back to a fairly optimistic outlook for rate cuts.. at least, a higher probability of rate cuts.
If you check on the CME FedWatch site, you will see that it is split down the middle.
The probability of a 25 BPS cut is...50%. The probability of a 50 BPS cut is .. 50%.

If it wasn't so annoying, it would be funny, I'm sure.
Over the course of the last 3 weeks, we have went from 40% probability of a 50 BPS cut, to sub 40, to over 50 and now to 50.

And really what it comes down to is what this rate cut actually is, 25 or 50? Market is expecting, from my understanding, a 50 BPS cut. Anything below that will likely cause further selling.
However, getting a 50 BPS cut will resume the bull market thesis per norm.

My bet is 50 at this point because there are still a tad bit more bullish indications than bearish, i.e. that still unhit high prob on SPX which puts SPY above 570.

Anyway, as I am not a fundamental analyst and all of these fundamentals BORE ME TO DEATH, let's get into what math, models and projections say for next week!

Outlook for next week is Bullish with a hint of whipsaw. Makes sense given the fact that this is the long anticipated week of the rate cut announcement!

We also have came so close yesterday (Friday) to hitting that high prob target on the month of 563, but it just fell short:


This target has to be hit, the probability we don't hit it is 3%.

The ARIMA outlook for next week is positive and has us uptrending:


At day 5, arima has the 95% UCL (95% probability we close below) at 595, and the 95% LCL (95% probability we close above) at 564. That's a HELL of an aggressive forecast for ARIMA, essentially saying we are closing the week next week in the 560s if all goes to plan.
I have to say, I am skeptical, but ARIMA has always done me well, so I will be mindful of these levels for sure.

Our generic price targets are in the main chart above, but essentially the forecasted high for next week, assuming a bullish thesis, is 569. And since 69 is my favourite number, then I suspect its going to be the one.

The forecasted low, assuming bearish, is 552.

Both price targets are possible given the outlook of bullish whipsaw, so keep that in mind.
And at the end of the day it really does lean into the fundamentals this week. You really need to pay attention to that rate decision.

All in all, those are my thoughts.
Once market opens I will have a whole slew of new data and probs, so can update if anything is particularly interesting then.

Otherwise, safe trades and have a great weekend!