Perspective: S&P 500 short side off highs

August 7, 2018 08:53 AM

The S&P 500 is painting too many short side indicators near here to ignore the idea of a weeklys options short call spread 2855/2850 strikes, using under $500.00. The market internals collapsed at lunch, while the indices formed sell-signal candlesticks on many time frames. Prices are beyond my projected highs of the week, and sideways pivots for the month and week are present.

Overhead resistances are the monthly and weekly Camarilla pivots in the context of negative divergence in fisher understudies making lower highs, while prices are making higher highs. Volume appears to be decreasing at increasing rates at these price levels as well. Volume Profile study (15-min., 60-min., 4-hour, & daily/weekly charts) shows prices over Value Area High lines. One could even hedge against the short by shorting the ZN 10-year bonds call spread off the 2-hour/hourly charts’ sell candle signals in case bonds go down, while the index struggles higher. Truly, this article is an exercise in “charting share” for subtle countertrend clues/details, and I’m sorry I can’t guarantee it won’t retest/reach the big high and bust this trade into pieces.

What could work against the trade idea? Plenty! What if it is testing the big high and does not stop until 20-points higher at it? What if it actually must probe these overhead camarilla pivots? Is shorting the index ever a good idea? Well, since the wide-range price move on the daily chart already occurred, sideways or slow-trending higher price action (worst case scenario) may ensue, but the chances of another wide-range move before Friday is less likely.

My prediction presently is and stands at a 15-point drop in the S&P (2,835 area) before Friday’s close or sideways action slightly under current levels at some point closer to close on Friday than today (Monday), thus allowing time decay and price action to give some scalping profit potential in the spread. Note: this is a trade idea and I am busy with kids back to school this week and not trading! I simply am writing this in case Trevor’s Top o’ the Week near here becomes a swing high, and I don’t want anyone to miss these clues on the way up to a potential high inflection point.  

The above chart shows multiple time frames (left to right top are 15-minutes, 30-, 60-, 120-,240-minute charts). The S&P 500 sell candles are prominent at/near highs. Far right is $TRIN, a market internals indicator called Trader’s Index whose correct use/application or reverse indication is debatable giving an inverted hammer candle. The lower row (left to right are 5-minute, 5-, 5- 120-, 240-minute, daily) shows SPX cash index 12:20 pm CST 5-minute candle a sell signal with simultaneous $TICK and $TICK/Q (NasdaqTick) collapsing at high-noon lunch hour in a quizzical market that can’t hold its internals together while large, institutional traders take lunch? Far right Nasdaq $TICK daily chart already flashed an extreme valuation TICK sell signal on Friday, although the candle isn’t the best formation/placement/closing ratio (being slightly down the candle when it should ideally be way down on lows to close and extremely over the Bollinger Band so it has farther to fall down and reflect more extremism in buying). No advice rendered. Source for chart: Think or Swim

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 @TrevorSmithCTA