The SPY both opened and closed below its daily Bollinger band. This suggests more downside ahead as the momentum is strong. The bullish percentages are also quite negative.
An explanation from a respected technician @ the cobra forum (uempel)
Bullish Percentages – for those who might not know: BPs show the percentage of components of some index (e.g. SPX has 500 components) which are on a P&F buy signal. The percentage change of a BP indicates the general direction of that specific index: if more and more components are on a P&F “buy” the index should move up. And vice versa: if the BP goes down most likely the index will tank too.
Only problem is that BPs are not capital weighted. Whereas most indices are – the exception being the DJI. This means that even though BPSPX is down 1% the SPX index might be up – this could happen when heavily weighted stocks such as appl or xom are sharply up a few percentage points.
Today’s market at the close:
BPCOMPQ -0.87%, BPNYA -1.64%, BPSPX -2.18%, BPOEX -12.86%, BPNDX -1.37%, BPENER -13.64%, BPINDU -4.35 – only BPFINA is flat.
Though we’re getting oversold, it all suggests we got some more downside to go, or at the very least, we haven’t seen the bottom yet, but its probably close. The target could be the 150 DMA at 201. That’s where the last downside move finished. Does this change anything for me or my trading plan? Not really. I may do slight adjustments on a bounce today as I did Monday and there is no reason to touch either the MIC or the Protector so what am I left with? Just the few straggles of other trades I have going on (SPY/TLT) etc
The alpha protector did pretty good today, it was positive the entire time even while spy was declining at the end of the day. The individual issues in the alpha section were out-performing the broad market. It put the entire trade positive for the year. I am obviously very happy with the protector results thus far. It’s not really a trade as it is a nicely hedged long portfolio that is measured on years. It’ll perform in all market types. I expect the alpha protector to do 6-10% in bearish years, 7-11% in neutral and just under perform SPY in big bull markets like 2013.
The protector draw downs are an interesting subject. If you start the strategy and the market moves up, the delta on your long put starts going below 50 pretty quickly. In this case we bought at 205 and we reached 212. Unless we rolled the long put 205 to 212 the gains are more or less not protected, we’re under insured on the gains we’ve had to date. So as the market falls back, we’ll see larger drawdowns from peak until we reach about 205 when the delta is back to 50%. As it goes further and further below the long put strike, the more and more the delta will increase and our portfolio losses will be matched by gains in the long put. We typically roll the longs at about 6-7% in gains so we were due to roll at about 217-218.