The SPDR S&P 500 ETF (SPY) - Get Report , known as "Spiders" by active traders, opened above its monthly pivot at $281.13 on the last day of March. The first-quarter rally from its December 26th low of $233.76 exceeded 20%. My call is that Spiders will trade between a semi-annual value level at $266.14 and its annual risky level of $285.86 in April, my target for 2019.
The high for the first quarter was $285.18 set on March 21st, below the all-time intraday high of $293.94 set on September 21st. From the all-time high to the December 26th low, Spiders declined by 20.4%. Technically speaking, the ETF hit bear market territory on that decline, since it fell more than 20%.
New monthly and quarterly levels will be available next week. The monthly pivot for March is at $281.13, which acted a magnet many times since March 4th, and will likely be replaced by a monthly value level around $270.50. The first quarterly risky level at $292.16 also rolls out of my proprietary analytics and replaced by a second quarter risky level around $283.10. These levels are between the semi-annual pivot at $266.14 and the annual risky level at $285.86 continuing the choppy pattern seen in March.
My call thus includes the possibility of a new 2019 high, but not a new all-time intraday high. Further, my all does not include a major selloff either. The call for "no new high" is supported by observing the weekly slow stochastic reading which will likely begin April above 90.00 on a scale of 00.00 to 100.00. I describe this as an "inflating parabolic bubble" -- and bubbles always pop.
The way 2018 ended was like the way the 2008 bear market ended on March 9, 2009. Both ended with forced selling, not panic selling, on margin calls. When I was on Fox Business on March 9, 2009, I called for a 20% to 40% rally and they conducted a survey that showed that 88% disagreed with me. My response was, "that makes me more bullish!"
At the Christmas lows I was equally bullish just by looking at the charts. Spiders tested its 200-week simple moving average or "reversion to the mean" at its Dec. 26 low of $233.76 and investors should always buy a decline to that key average. That day was also a "key reversal" as the close at $246.18 was above the December 24th high of $240.83. This meant that a tradeable rally would begin.
The Daily Chart for the SPY ETF
Courtesy of MetaStock Xenith
The daily chart shows how my March pivot at $281.13 was a magnet since March 4th. Note the "key reversal" on December 26th when the cycle low of $233.76 occurred. The close of $249.92 on December 31st was an important input to my proprietary analytics, while my semi-annual and annual levels are still in play at $266.14 and $285.86, respectively.
The close on March 29 will be another important input to my analysis and will result in new levels for the second quarter and for April. These calculations will include a weekly level for the first week of the month. Note that $266.14 provided buying opportunities between January 18th and January 30th. April will likely open with a "golden cross" as the 50-day simple moving average crosses above the 200-day simple moving average to indicate that higher prices will follow. Since I expect a trading range, not a breakout, I will not focus on this signal.
The Weekly Chart for Spiders
Courtesy of MetaStock Xenith
The weekly chart for Spiders has been positive since the week of January 18th. The ETF is above its five-week modified moving average at $276.57. The SPY ETF is well above its 200-week simple moving average or "reversion to the mean" at $238.78 after this average held at $234.71 during the week of December 28th. The 12x3x3 weekly slow stochastic reading is projected to end this week rising to 89.73 and will likely begin April above 90.00. The Spiders ETF is well above the overbought threshold on 80.00 and will likely be above 90.00 next week as an "inflating parabolic bubble," which is a reason to reduce holdings.
Trading Strategy: Buy weakness to its semi-annual value level at $266.14 and reduce holdings on strength to its annual risky level at $285.86.
How to Use My Value Levels and Risky Levels
Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semi-annual and annual closes. The first set of levels was based upon the closes on December 31st. The original quarterly, semi-annual and annual levels remain in play. The weekly level changes each week; the monthly level was changed at the end of January and February. My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in.
To capture share price volatility, investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.
Using the Weekly Slow Stochastic Readings
My choice of using 12x3x3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.
The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best.
The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold. Recently I noted that stocks tend to peak and decline 10% to 20%, and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble" as a bubble always pops. I also call a reading below 10.00 as being "too cheap to ignore."
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Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.