I had something else in mind for this Weekend Update, but the action of the last two hours of trading on Friday has intervened. Instead, the price decline of those last 120 minutes suggests something much more bearish may be afoot. Although I've sub-titled this update, "Reversal Pending," the more I look at the charts underlying my thesis, the more likely it is that "Pending" should really read, "Started." Let's get to it. S&P 500 - Hourly Chart This Hourly chart of the S&P 500 is what caught my attention. It developed over the final 120 minutes of the regular market session, too late for me to send out an Alert (Into The Close - goes live an hour before the close), but not too late to jump on Monday morning. A fifth wave at multiple degrees of trend, followed by a reversal and the beginning of five waves down in a new impulsive trend. The two red arrows identify a new impulse, DOWN, that has broken the second wave, most of the price action of Friday, right up until the final two hours. My EURIKA moment. So I scratched what I was going to write this weekend and am embarking on a trading strategy that assumes a new leg down has started. It has the potential to be dynamic, contain opening gaps down and possibly a crash day...or two, just to start off what could be a heck of a summer. However, let's not get ahead of ourselves. First we need confirmation that a tradable down trend has begun. Our goal is to monitor price action on Monday, anything lower after the first couple of hours would be confirmation enough. If so, it is time to make the advantageous bets., using 30-day options, June expiration, in one of the major indices. You pay me for times like this and I sure as hell am looking to earn my keep. If the market drops, or better yet, drops hard next week, take advantage...this could be your last chance to prosper from a spot-on analysis (or merely lucky guess, either one works for me). I am laying out my case that a major top is in with in the language I know best, charts, because it is the graphic implications that stand out the cleanest and provide the highest and best evidence of the beginning stages of a prolonged downturn. Here is the best part, if the market takes out last week's high tick, my thesis is wrong. For most indices, that's just a handful of points higher, no matter what index we look at. On options, the risk is a -50% stop loss, for what could be thousands of percent of profit, come Armageddon, or just a few hundred percent if it turns out to be just a typical run-of-the-mill downturn within a larger bull market. SPY - Past Year The past year in a five wave topping pattern, with high tick @ SPY 749.53 on May 14th. SPY closed Friday @ 739.08. That's just a little over 10 points of SPY risk. SPY - 15 Minute Close up of Wave 5 and Reversal Down Ominously, SPY closed below the entire Wave 5 uptrend (See Daily chart above). This means it only takes a rally back to above SPY 750, the May 14 high, to cancel out the bearish case, i.e., minimal risk. On the other hand, a gap down increases the likelihood of much lower prices to come over the next weeks to months. QQQ - Break of Uptrend Channel QQQ closed Friday @ 708.93. It's high last week was 722.03. A close above that high would invalidate the immediate bearish case. As with SPY, risk is limited to, in this case, a Fibonacci 13 points. The Q's sneeze 13 points in their sleep. So as with SPY, an invalidation rests just above Friday's closing numbers. Key to confirmation that a significant decline is at hand will be market action early next week. Suffice it to say that market weakness after the opening bell on Monday should be met with the purchase of index puts as set out below. A higher opening and market early next week, just sit on your hands. A downside open or intraday reversal lower by any indices should be met with puts, commensurate with your conviction that a hard down market underway. Strategic Downside Bets On Monday there will be 31 days left (including weekends and Memorial Day) in the June expiration series, the minimum number of days needed to garner the best bang for your option bucks. QQQ June Puts The highlighted strike, QQQ 655 is tentatively selected because I prefer spending about $5 to $6 for an index option with a month to expiration. That strike selection could change come Monday AM, as prices reflect opening numbers. SOXS Jun Calls Note: I've included Friday's percentage gains for all options in these tables. As is obvious, for the same months there isn't much percentage difference, i.e., they all seem to move together. That said, this 3X bearish semiconductor ETF has huge upside potential as it is laser focused in the hottest, most overbought market sector. SOXS 180 Minute Above $10, SOXS can easily double-to-triple. Worth watching. SPY July Puts A little less percentage gain for the privilege have having an extra month until expiration. Is it worth it? Personal choice. Volatility Calls Note: In anticipation of a "hard down" trading day, volatility calls would work, but only under those conditions. I hesitate to post prices because in fast conditions, everything is pumped higher (prices shown in tables below would become meaningless). Dangerous, but can be very effective as a short-term trade, as is shown for first quarter of 2026. VXX UVXY Bottom Line Market structure into the close on Friday has set up what could be a short-term, intermediate and long-term market top. Stock futures begin trading Sunday evening. Hard down and assume the bearish posture laid out above. Same for a gap-down at Monday's Open. Any strength in the indices on Monday would bode well for a bullish month ahead. In either case, there is an option strategy that works. Final Thought Among the major indices, DJI, SPX, QQQ, IWM, all except the DJI made a new all time high in May and have turned down, while the DJI has turned down, but 300 points short of its previous all time high made in February. Key levell: DJI 50,512 - so long as it holds, bearish resolution of all of the above is front and center. Active Options Active = Unexpired and not exited via a -50% hard stop. PRO Service Premium Service
