Bullish Path the Higher Probability for SPY
By
Luke Miller
Our Bayesian Timing System (BTS) outlines two potential paths at the moment for the SPDR S&P 500 (SPY).
In the first path, with a Bayesian Probability (BP) of 61%, the SPY found a longer-term bottom near the lows on Dec 10 and price will begin a bullish leg higher to the 300s. More specifically, the BTS sees a target of 300-320 into Q1 2019. But more on that IF and when path 1 occurs.
In the second, with a BP of 39%, a bear market of sorts has begun dropping well below 250 (with no immediate recovery). This path is expected to last months and have bearish attributes of a 20%-30% correction from ATHs.
On a micro level, the vibration window delivered the relative high on Dec 3, as discussed and expected in these daily thoughts. The bulls could see the rubber band stretch down to 255; but preferably SPY stays closer to 259 than 255. A vibration window is confirmed for the week of Dec 10. On Dec 10, SPY stretched into the targeted 255-259 range; however, the signal remained neutral, as the BTS expected a little more downside work before it’s all said and done.
Keep in mind, the BTS is looking for a sustainable trend of 1-3 weeks, and one hasn’t appeared yet. Now that doesn’t mean SPY didn’t bottom on Dec 10 as it is a low into a vibration window and into the targeted 255-259 range. This week could be very interesting in terms of how things progress over the next few months, and being neutral is where Bayes prefers to hang out until a path lights up.
Finally, I would point out the 271s zone still shows up, and at this point has become that nagging level the SPY can’t shake (whether bearish or bullish). It’s as if 271 has been the mean-reverting center since mid-October. And I will add the following as a note: a zone in the 247-251 range has gotten some interest of late. I realize that’s "way down there" and not sure how to interpret it at the moment. But, as at the moment, a BP path does exist that would allow both a 240s handle and 300s handle within a BTS signal period (i.e. a few weeks).
In metals, the action continues to fit within BTS expectations, with the expected pullback into 114.50-115 in the SPDR Gold Shares (GLD) and then a recovery higher and a press higher into the week of Dec 3. The BTS still leans towards a break higher out of this consolidation and a press to 120-123.
Here are two paths to consider: (1) [BP=72%] GLD develops a false break low from the 113s and then higher into year end, and (2) [BP=28%] GLD's high on Oct 26 generally holds, a false break higher confirms, and then a bearish push below 113 begins.
What next? GLD continues to press higher from the lows identified last week. A pullback in GLD to the 116s can’t be ruled out; and if it did, would create the energy for launch into year end for metals. The BTS views a pullback into the 116s (if it occurs); as the “last daily pullback opportunity” on this path to higher into year end (i.e. those bullishly inclined may want to be ready for it).
