Option Analysis Setups: Jackson Hole Starts New Bear Leg. How Low Can SPY Go?
Weekly Recap:
● The Jackson Hole speech by Powell IMO brought traders back to reality
● SPY closed down over 3.35% which is a + 2 STD DEV move
● The weak close creates a bearish tone for the rest of the month
● Rallies are opportunities to sell
Major Market Indices & Option Flows
1: S&P 500 ETF ($SPY)
Last week markets consolidated ahead of the Jackson Hole speech, never able to close above 420. But once JPow spoke at JH, days worth of gains were evaporated in hours and we had one of the biggest red days in months losing 3.35% in one day.
We’ve been trying to warn traders of being too bullish or complacent while letting y’all know traders are not prepared for a downside move should it materialize.
Well, we got it, and now puts are firmly in control with bears set to hold firm till we get a strong sustained rally.
To give you an idea of how significant Friday was, total share volume was over 100M. Consider the fact that a) we hadn’t cracked 65+M shares in weeks, and b) the average 10 day was 54M going into the JH event, it shows you that real money macro players sold en masse.
We are bearish till we get 1-2 daily closes above 415, maybe even 420, so we are only committed to one direction for the week and end of month.
Plainly speaking, we want to sell rallies and will use those opportunities to take bearish plays (spreads or BWB’s) targeting 400.
We expect vol to increase this week and short term impulsive rallies to give way to impulsive bear moves, so don’t be fooled by any short term rallies as we have a lot to clear out above before bulls and calls are in control.
While we could lose 400 this week, we think selling actually decelerates a bit below this because of tail risk hedging already in place.