Three "Correction Is Over" Scenarios for the SPY

Our Bayesian Probabilities (BP) outlines the following potential scenarios for the U.S. Indices, specifically the SPDR S&P 500 (SPY).

(1) [BP=30%] SPY begins a more direct push higher with the low on Oct 29 being "a temporary low" for the present time and then to 278-282 and then back down to 258-262 and then the "correction is over."  This path assumes the bull market continues and SPY will be greater than 330 within 12 months.  A signal level that is very important for this path is getting back above 271-273.  Be on the lookout for a deep retrace from the 271-273 level for an opportunity to join the trend. 

(2) [BP=34%] SPY bounces and correctively moves back up to 272ish and then back down to 260ish and then a run to 278-282 and then back down to 260ish and then the "correction is over."  

(3) [BP=19%] SPY breaks 260 and presses more directly into the mid-250s, then the "correction is over" with a general move higher beginning that is multi-week to multi-month in duration.  This path assumes the bull market continues and SPY will be greater than 330 in 12 months, and (4) [BP=17%] A bear market of sorts has begun dropping well below 260 (with no immediate recovery). This path is expected to last months and have bearish attributes of a 20%-30% correction from ATHs.  A vibration window is forming that is centered on Nov 5 (the day before the US elections), but could spread either trading day around it. 

Moving over to metals, the action in the Miners ETF (GDX), SPDR Gold Shares (GLD) and iShares Silver ETF (SLV) continues to fit within our expectations.  More back and forth with no real traction for bulls or bears at the several-day perspective.  The Bayesian timing system (BTS) still leans towards a break higher out of this consolidation and a press to 120-123 still seems most likely.  The expected BTS path is a lot of chop to higher over the coming weeks (and possibly months).  

Here are two paths to consider: (1) [BP=62%] GLD tests and slightly exceeds the high on Oct 23 and then corrects to 115ish and then off to 120.  This was seen on Oct 26 and was not unexpected.  Staying above 114 is preferred.

(2) [BP=38%] GLDs high on 10/26 generally holds, a false break higher confirms, and then a bearish push below 113 begins.  Further a vibration window is forming for this week – for now focus on Oct 31 plus or minus a day.  As I get clarity, I will post any updates real time. 

Among other ETFs:

Oil:  USO Short.  There remains a BP path for a reversal back to the 13.50s.  I will most likely switch USO over to a trending stochastic process after this signal is closed out – that will be a quicker and more responsive signal.  Regardless, and only in hindsight is it this painfully obvious, the trending process would have performed significantly better on USO over the last year. For now, here are the BPs: Assuming a binary in and out based off the signal and over the next 10 trading days, the BP of USO getting below 10.20 = 1%, the BP of getting below 11.75 but above 10.20 = 7%, the BP of staying between 11.75 and 13.30 = 58%, and BP of this staying above 13.30 = 36%.

UNG:  Signal Long.  UNG continues to consolidate near its recent highs and appears to be working its way higher.  The action off the high on 10/10 continues to present as corrective and the BP cluster at 28 still has importance.  A false breakdown out of this multi-week consolidation could be the spark that sends UNG into its target zone higher.

UUP: Signal Short.   UUP continues to chop around above the BP resistance cluster in the 25.30s.  Getting back below 25.10 remains very important for that shot down to the low 24s.

Luke Miller, who has developed a Bayesian timing system for trading the stock market, hosts two Bayesian timing premium services at ElliottWaveTrader.