S&P 500 crash test signal

July 24, 2018 02:22 PM

The S&P 500 -- as of 1:45 p.m. Central on Tuesday, July 24, and subject to change before close -- offers daily-chart traders a miniature crash or microcosmic test of a throwback down signal. If the major swing top is near and forming slowly, as mentioned in another Jeff Greenblatt’s work today (and all of Jeff Greenblatt’s books I have read; it is an honor to write anything where he writes), then some minor down-thrust market tests could easily precede a larger drop. Additionally, my articles suggest a two to three month long bonds position in options spreads, with the 30-Year Treasury signal being stronger than the 10-Year Notes’ signal.

The real estate part of the overall market pricing equation is that professionals bought real properties near lows, and they may wish to sell these market highs, except buyers want low interest rates; a bond rally could temporarily relieve this situation and complete a cycle of the greater fool theory wherein professionals sell real estate at high prices, leaving the next owner conveniently holding the bag in fresh, low-rate loans unable to find a greater fool able/willing to pay a higher price for said properties. This is the Monthly Chart long bonds (call spread or short put spread) trade into Aug.-Sept.

Today’s weeklys options trade is easily seen on the Nasdaq futures Daily Chart. Chartists can observe an inverted hammer high, over the Bollinger Bands and over Fisher understudies in negative divergence (not supporting higher highs). 7,351 is my first low target on the Naz fallout.

Conversely, and in harmony with the three-month long-bonds trade, the daily chart of 30-Year Treasury Futures has the opposite signal for a weeklys short put spread using weekly options. 143’-144’ tick targets could comprise the spreads using the halves. If you don’t think it will happen in 3 days by Friday’s expiration, the do a calendar or diagonal spread using next week’s expiration. Warning, while a perfect candlestick, no momentum study support exists.

This is a daily chart miniature version of what may occur on the monthly bonds and weekly indices charts. See charts below for a Naz short and bonds long intraweek-two-week trade. As an afterthought, what if one used both option spreads but employed the cheaper of the two options spreads taking the opposite position as a hedge against being wrong? Good luck.

Above Charts: The Nasdaq futures daily chart left shows a red inverted hammer sell signal with an overbought Fisher understudy (with added negative divergence plus a wave pattern ((Down-up-down arrows)). 7350-7300 could be reasonable targets, and Tues. could offer an entry bounce with the fast-Fisher snap-up signals for the Nasdaq. Right, one can see the long 30-Year Treasury Extreme Valuation Reversal candlestick lacking momentum support. If this Friday’s expiration is too close to risk, a calendar or diagonal spread could offer next Friday’s expiration. 






About the Author

Trevor Smith is a registered commodity trading advisor who holds four degrees across multiple disciplines. His study of financial markets led to his beliefs that investors can be self-directed and that market moves could be predicted using a variety of technical indicators and mathematics. His website is www.trevorsmithfnp.com. @TrevorSmithCTA