Last week here I outlined a more bullish thesis and showed two separate open interest graphs for SPY, the quarterly and the weekly. The main theses was we would close above 192 on Wednesday (check), and that the best pin on Friday would be 195 (check). The path to getting those was surely not smooth or easy to play. In fact, we came into Friday short; however, we quickly flipped long for an amazing end to a challenging week. I also gave heads up on Twitter and StockTwits with this tweet that I hope helped. 
Is the bottom in for the year? (Every time I think of that question, this Taylor Swift song comes to mind). Personally, I don’t know the answer to that, but provide a few arguments for and against them both. There are likely many arguments I am missing, but below will provide a good starting point for your own analysis.
Arguments for a bottom being in:
- Most large corrections go down to test their lows (or undercut them) at least once which did take place last week.
- There were many positive divergences on the second retest, a few of which I will demonstrate below. The first is that 20-day lows made a lower high upon the retest, meaning less stocks were at lows during the retest.
The following images of positive divergences are taken in relation to the 2011 bottom. I do not believe any two corrections are the same, but the similarities are striking and also demonstrate what a secure bottom does indeed typically look like.
- Below is the weekly chart of 2011 and 2015. The highlighted yellow lines are the first bottom, while the second are highlighted in green (assuming that indeed the market bottomed last week). Note the MACD, RSI and stocks above their 50-day MA are at very similar points, each sporting a higher low. The major difference of course is that the 2011 correction lasted two months, while this recent one, thus far, lasted only a little over a month (measured from the first to the second bottom).
- Below is a more detailed look via the daily charts of 2011 versus 2015 with the same indicators.
- Finally, here is a different look of 2011 versus 2015 showing volume and the VIX both with lower highs.
- Finally, Chris Ciovacco posted this handy list below of reasons the market has possibly bottomed. He elaborates on each one in his video here.
Arguments against a bottom being in:
- The most obvious one is that the market is currently below all significant moving averages with the longer time frame daily averages above the shorter time frame ones (200 MA over 50 MA over 20 MA etc). That of course can easily change and always does once a bullish trend resumes after a correction; however, as it has not yet changed it’s difficult to confidently say we are currently out of the woods (see what I did there ;-)).
- Ryan Detrick posted the table below with this comment “Think about this. N=22 SPX down 6% or more after 3Q. Has NEVER been green by year end. Can ’15 break it?” Note that he breaks it down further in a post here, that explains this may not be as bad as it sounds on the surface.
- Lastly from Rory Handyside (Note the “potential” bottoming candle was made on August 29th.)
Taken all the information above, I think the evidence shifts more to the bulls right now; however, further positive developments over the next couple of weeks would make the argument much stronger. One such development would be the 20-day moving average crossing back over the 50-day as it did in 2011.
Next week
Oversold/Overbought: I only display one below, which is SPX stocks above their 10-day MA. This is a shorter time frame look and currently is nearing overbought levels where stocks tend to retreat. If this measure can remain somewhat elevated next week, it will further support the bullish case. 
SPY open interest and notable levels: When I tweeted out Friday that the SPY open interest had a more bullish look that was when price was near the heavy 190 put strike. With Friday’s close 0f 195, the open interest becomes more neutral; however, it also gives us a target should the rally continue. Here are some notes combining technicals and the open interest to help guide your week.
- Above 195 first targets 197/198. This target can easily be hit by Monday or Tuesday especially with a gap up that I give high odds of happening. Price would likely stall there upon a first touch.
- Above 198 targets 200/201. Price would likely stall or even more likely pull back at this point to make a higher low near the 197/198 area. This would provide another high risk to reward long entry again to the 200/201 area.
- Below 195 and 192 needs to hold or the odds that price revisits 190, 187 and falls below become much higher. This is the least likely scenario; however something that should not be taken lightly should that develop.
Next week has the potential to be a huge week, especially for option traders. If you are looking for daily analysis, set-ups, option entries and exists come join us. Should the rally continue next week there are several stocks that are set-up to have explosive moves. To find out which we are targeting join us here.
Taylor Swift Asks, ‘Are we out of the Woods?’
Last week here I outlined a more bullish thesis and showed two separate open interest graphs for SPY, the quarterly and the weekly. The main theses was we would close above 192 on Wednesday (check), and that the best pin on Friday would be 195 (check). The path to getting those was surely not smooth or easy to play. In fact, we came into Friday short; however, we quickly flipped long for an amazing end to a challenging week. I also gave heads up on Twitter and StockTwits with this tweet that I hope helped.
Is the bottom in for the year? (Every time I think of that question, this Taylor Swift song comes to mind). Personally, I don’t know the answer to that, but provide a few arguments for and against them both. There are likely many arguments I am missing, but below will provide a good starting point for your own analysis.
Arguments for a bottom being in:
The following images of positive divergences are taken in relation to the 2011 bottom. I do not believe any two corrections are the same, but the similarities are striking and also demonstrate what a secure bottom does indeed typically look like.
Arguments against a bottom being in:
Taken all the information above, I think the evidence shifts more to the bulls right now; however, further positive developments over the next couple of weeks would make the argument much stronger. One such development would be the 20-day moving average crossing back over the 50-day as it did in 2011.
Next week
Oversold/Overbought: I only display one below, which is SPX stocks above their 10-day MA. This is a shorter time frame look and currently is nearing overbought levels where stocks tend to retreat. If this measure can remain somewhat elevated next week, it will further support the bullish case.
SPY open interest and notable levels: When I tweeted out Friday that the SPY open interest had a more bullish look that was when price was near the heavy 190 put strike. With Friday’s close 0f 195, the open interest becomes more neutral; however, it also gives us a target should the rally continue. Here are some notes combining technicals and the open interest to help guide your week.
Next week has the potential to be a huge week, especially for option traders. If you are looking for daily analysis, set-ups, option entries and exists come join us. Should the rally continue next week there are several stocks that are set-up to have explosive moves. To find out which we are targeting join us here.
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