Friday the 13th wasn’t a great day for the market with Greece headline woes disabling market bulls. But a stalemate of another sort on the weekly S&P 500 ETF (SPY) chart, bearish seasonal tendencies and an under-the-radar bearish daily signal point to buying a SPY August put vertical rather than the latest dip as a smarter portfolio purchase.
A stalemate in Greece debt negotiations and rate tantrums tied to renewed speculation over when the Federal Reserve will move off its ZIRP (Zero Interest Rate Policy) had bullish investors on their heels in the SPY to close the week.
Friday’s combined headline agitators resulted in the SPY closing off by -0.8%. The action left bulls still largely unharmed on the weekly chart, or a stalemate of sorts. But more ominously, a technically covert Friday the 13th signaled more bearish June gloom lays ahead.
SPY Daily Price Chart
Whether the proverbial end is near for Greece or ZIRP is better addressed elsewhere. What’s more alarming to us is the daily chart of the SPY and its bearish implications.
As an investor and one interested in the charts for forward-looking clues, it was Friday the 13th, technically speaking, in the SPY ETF. As the annotated chart shows, Friday marked the 13th instance in 2015 where the SPY crossed below and closed under its key 50-day simple moving average.
Thirteen, of course, is considered an unlucky number. It also happens to be part of the Fibonacci series of natural numbers used in determining market cycles. Put the two together, along with a seasonally weak period in the market, and our concern for much lower prices in the SPY is heightened.
Sealing the deal and viewing the latest “buy the dip” situation as anything but opportunistic for investors. The SPY is still just off less than 2% from its all-time-highs while closing marginally higher on the weekly chart in a doji candlestick pattern. Doji candles are indicative of indecisive investor behavior in front of a directional resolution.
With a bull run of more than six years and about 220% in gains in the SPY since the financial crisis lows, we believe the “resolution” will be for lower prices.
Our technical and equally pragmatic view of the SPY is an investor doesn’t need to be a perma-bear to appreciate a historically normal 3% to 10% correction is very approachable as an outcome this summer given all the evidence presented.
SPY Bear Put Spread
Checking the SPY options board for position ideas that fit in with the offered situation in the SPY ETF, the Aug $210/$200 bear put spread for a debit of $2.85 is attractively priced.
For less than 1.3% SPY ETF stock risk, the trader can make a return of 250% or $7.15 per spread if the SPY is below $200 at expiration. This would require a total decline of -6.4% from the recent highs and is well within the normal boundaries of a corrective move of 3% to 10%.
Another benefit of this SPY spread, by positioning with an August vertical the trader has initially reduced both time decay and volatility risks known as theta and vega.
Additionally, while the limited risk feature is always attractive, the soft directional risk of the SPY vertical at current prices should allow for a much tighter loss if technical-based money management above recent highs is implemented in the next couple to handful of weeks.
As of this writing, investment accounts under Christopher Tyler’s management do not own positions in any of the securities or their derivatives mentioned in this article, but may initiate in the future at their discretion. The information offered is based upon his observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT
