Last weekend I wrote the following in regard to, SPY, IWM, QQQ and how important a hard down day would be to our trading: "What these three stock index charts have in common is that a hard down day next week turns them all extremely bearish, while virtually nothing stocks do turns any of them anything but neutral. That is the message going into the first week of September." With the first week of September now in the rear view mirror, let's take a fresh look at those charts: SPY 2-Day Trend Model SPY drops 20 points in four days, hard down enough to generate an early warning Sell Signal - Start accumulating SPY puts: Oct-Nov-Dec monthly expiration. SPX - Daily Interesting aside: Despite all my hoopla last weekend about the new SPY 2-Day Trend Model, here comes SPX generating its own Trend Model Sell Signal based on Friday's price action. Meaningful? An add, a big add, to weight of the evidence pointing down...hard down. IWM IWM fell right to channel support. Either it holds here, or look out below. Refer to S&P charts above and QQQ chart below for a hint of things to come for this index. QQQ 120 Minute Only relevant question: How far down can it fall in the next ten trading days? The Week Ahead The deck is getting stacked for more downside. If the market comes out of the gate hard down, finish buying SPY puts quickly. If there is a rally of any sorts, finish buying SPY puts quickly. If you need a trigger, look to IWM chart above and any hard break of the channel line, currently at about 205, portends an acceleration down. A close below IWM 200, seals the deal. IWM has some attractive puts and can serve as a substitute or addition to SPY puts. Bottom line: Pattern recognition considerations now align with Trend Model arrows and an ominous Sep-Oct-Nov crash window. Portrait of a Top Two Years In The Making This Elliott Wave Analysis is from Bob Prechter's Elliott Wave International and full credit is due them for a beautiful portrait of a DJI top, two years in the making, including a one-year long Wave 2 running flat. Key Option Positioning For Market Dive* Note three new positions added Friday mid-session. I want to focus here on key option positioning going into the Crash Window, which is now extended into November. Depending on what happens on November 5th, or reaction in the days that follow, it may need to be extended further. *Option Performance table for all Active Options are updated weekly at these two links: Premium Service; PRO Service. A recommended position is "active" so long as it has not declined more than 50% from its entry price. Fifty-percent trailing stops from Best Returns are recommended, especially once a position is up triple digits, locking in 50% gains (would have locked in huge returns in QQQ, SH and SQ in table above).
