SPY: Why I Just Bought Put Options Again (Technical Analysis) (NYSEARCA:SPY)

I use bounces in bear markets to buy longer-term, out of the money, Put options and I just did that with Wednesday’s bounce in the market as represented by the SPDR S&P 500 Trust ETF (NYSEARCA:SPY). I don’t expect a Santa rally in a bear market, but if we have one, I will probably buy more Put options. I don’t expect the first week of January nor the month of January to be up during a bear market (see statistics in the “Trader’s Almanac”).

The Fed continues to raise interest rates, telling me that a pivot is a long way off. The Fed also promises to keep rates high until inflation drops to their 2% target. That doesn’t happen until 2025 at the earliest. Unemployment is very low. Consumers are spending. The economy is still strong, although the real estate market is in recession.

Despite the continuous, bearish drum beat from the Fed, there are bulls fighting the Fed. This is contrary to the famous motto among Wall Street professionals. “Never fight the Fed.” The bullish narrative goes something like this: The Fed wants a soft landing. The Fed will not stick to its target of 2% inflation. The Fed is already pivoting by dropping rate increases from 75 basis points to 50 basis points. The economy is strong. Inflation is dropping.

This false, positive narrative is not accepted by the Fed, because the Fed is still intent on keeping interest rates high until there is a big drop in inflation or a big increase in unemployment. So far, unemployment is not increasing and there is only an indication that inflation has peaked but has not dropped to anywhere near the Fed’s 2% target.

All of this tells me the bear market will continue. Bounces in the bear market, just like the one we just had reaching $410 resistance, will fail and the market will drop to retest the bottom at $344, if technical analysis patterns of the past reappear in this bear market. If you use past patterns, this bear market has not even started to put a bottom in place. That happens when the bear market is over. No sign of that yet.

The latest bear market bounce formed a bearish, double top at $410 resistance and is currently dropping for support. It found some support at $372 on Wednesday and bounced to $388 resistance before being stopped. We think the drop continues, with bounces like these until it retests the bottom at $344. That is why I bought long term, deep out of the money Puts. I expect to sell them at a profit in January or February. Then I will buy Puts again on any bounce. I write a daily article on the SPY and send it to my subscribers so they are up to date every day on the movements of the SPY.

The good news is that even in a bear market there are always stocks that are outperforming the Index. We list these stocks in our 2023 Watchlist. Then we select stocks from this list to put into our 2023 Model Portfolio. We will be happy to send you our current Watchlist. Just email us at dailyindexbeaters@gmail.com and we will email the pdf file. Our holiday present to our readers!

Here is our daily chart with the red, vertical line, Sell Signal. It is in deep Supply, oversold territory. This could change if we have a Santa rally.

Here is our weekly chart with our red, vertical line, Sell Signal. We don’t expect this signal to change, even if, by some chance, we have a Santa rally.