This ETF is poised for a new all-time high in Sept. as its quarterly and monthly risky levels are $305.22 and $319.09, respectively, above their all-time intraday high of $302.23 set on July 26. The catalyst for this melt-up is the expectation that the U.S. and China will reach a trade deal by October, and given the prediction that the Federal Reserve will cut the federal funds rate when it next meets on Sept. 18.
The October crash will feel like the December 2018 bear market decline. The cause could be a stalled trade war; Fed policy disappointment; or most likely, weaker-than-expected third-quarter earnings and cautious guidance. Failure to hold semiannual and annual pivots at $294.72 and $285.86 will provide warnings. The downside risk is to the "reversion to the mean" by year-end, which is the 200-week simple moving average now at $248.76.
Spiders closed Thursday at $297.38, up 19% year to date and in bull market territory 27.2% above its Dec. 26 intraday low of $233.76. The ETF is just 1.6% below its all-time intraday high of $302.23 set on July 26.
The Daily Chart for Spiders
Courtesy of Refinitiv XENITH
The daily chart for Spiders shows the ETF above a "golden cross" that formed on April 2, when the 50-day simple moving average rose above the 200-day simple moving average to indicate that higher prices lie ahead. When this bullish signal is in play, the trading strategy is to buy weakness to the 200-day SMA, which was doable on May 29 when the average was $277.32. Note how the technicals turned on a dime on Dec. 26 with a daily "key reversal" when the close of $246.18 on Dec. 26 was above the high of $240.84 on Dec. 24. Strategists who only track closing lows missed this important buy signal as they say the cycle low was the Dec. 24 close at $234.27.
They call it the Christmas Eve low when the real actual low was on Dec. 26. The annual pivot is $285.86, with its semiannual pivot at $294.72 and quarterly and monthly risky levels at $305. 22 and $319.09, respectively.
The Weekly Chart for Spiders
Courtesy of Refinitiv XENITH
The weekly chart for Spiders is neutral with the ETF above its 5-week modified moving average at $292.82. SPY is well above its 200-week simple moving average or "reversion to the mean" at $248.76 after this average held at $234.71 during the week of Dec. 28. The 12x3x3 weekly slow stochastic reading is projected to end this week at 60.60 down from 61.98 on Aug. 30. If the melt-up continues, the stochastic reading will be rising again at the end of next week.
Trading Strategies: Traders betting on the melt-up can buy at the semiannual pivot at $294. 72 and reduce holdings on strength to the quarterly and monthly risky levels at $305.22 and $319.09, respectively. Investors worried about the October crash should reduce stock holdings to their minimum on strength to the risky levels.
How to use my value levels and risky levels:
Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original annual level remains in play. The weekly level changes each week. The monthly level was changed at the end of each month, the latest on Aug. 30. The quarterly level was changed at the end of June. 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 now.
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.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.