March 31st, 2023

EOM, PCE

From the weekend newsletter:

For next week here’s what I will be watching:

$SPY
Shorts only below 392.34. I think trying to short above this level may result in premium crush, unless you are sizing into a big short that is for several weeks or months out. Optimal spot for shorts (shorter term) would be 403.75-406.61 area

This week so far we have seen exactly that, any short attempts over 392.34 level would have had their premiums crushed, and the move instead was to play the wedge levels.

We had noticed yesterday that the gap fill was unlikely to occur as we noticed very aggressive put writing of $398P for 3/29. I offered some thoughts on this on twitter and discord:

And we indeed rallied from there, all the way to 404.35 ahead of PCE tomorrow.

We indeed have left several gaps below, and they are likely to be filled. However, if we start to close above 406.61, then we have to consider the likelihood of 415+ on SPY.

Several weeks ago I mentioned 2 scenarios after the bear market trendline test: (link here)

Week of March 13th 2023

And well, now you can see that we retested the line and bounced, and that rally is looking likely now IF 406.61 is taken out, and if 396.60 holds as support.

I will continue to use 392.34-393.63 area as a guide. And will not do short term puts above this level.

For tomorrow I will keep an eye on the following levels: