12 Mar 2023 SPX Weekly - Bank Run
Accuracy: 52/58 (89.66%)
SPX above 3900 - WRONG!
Paper Trade
Let's start with my paper trade first, the iron condor I placed last week was slightly expecting a pullback which it kinda did until the bank situation that crashed the market.
It closed right below my iron condor which hit max loss of the $605. I think this is a good paper trade experience to me. I actually think my analysis was quite spot on but overwritten by the new bigger event that was totally not expected. I find that it's still a good outcome because it shows that I actually analysed quite right except for such unexpected times.
Last Week
Right at the start of the week, we see a rejection at 4080 area followed by big red down moves. Until Thursday where we have the bank run situation with Silicon Valley Bank and Silvergate Bank.
In the zoomed in 30 minute chart view, we can see clearly on Thursday we actually had some up moves led by economic events. Then the bank news came out which caused great fear to almost 100pts intraday down move on Thursday. Even until Friday we still have pretty volatile moves and closed lower.
Economic Events
Next week we get our usual CPI again, we should be pretty familiar what to expect on these now. But with the latest new bank run 'monster' situation going on, I do expect these events get even more volatile and sensitive.
Even those PPI, Retail Sales, Jobless Claims, I would think they might have bigger volatility than usual as the bank situation is so fresh now. Next week it'll be all over the news.
So events wise, I'm expecting more bearish sentiments here as these are short term moves caused by fear.
Bank Run
I wanna add a short section about the bank run saga. Although I'm not an expert here, I do my own reading and research to understand briefly what's going on and how would it affect the market.
In terms of 'bad news', this situation is definitely a fear generating news. Meaning short term there will be some market shock, which is what we saw last week. But as for the real impact, I've come to a few key potential scenario.
- The bank run will affect the other smaller banks, much like a domino effect. Mean's other banks might face similar situation that companies wants to get their money out of their bank. This would cause issue mostly to the other smaller banks that have similar issues but less likely impact the major banks. Regardless, if such a domino effect happens it can be pretty serious that eventually lead to bigger issues. But so far the situation does seems to be bank specific, we'll still have to observe if there are other banks getting affected.
- This particular issue related to banks could actually benefit the stock market in few possible ways. Firstly with regards to the inflation and interest rate topic, it might cause the Feds to take into consideration of slowing down the interest rate increase to not worsen the situation. As this potentially could be a bigger monster than inflation. Also, this is a specific financial sector problem where money could be flowing away from these cyclical sector towards the other better potential sectors, which could eventually benefit the stock market in general. Also so called sector rotation.
I'm actually hopeful towards this situation that it will slow down interest rate, market rotate towards the popular sector and have a good rally after the saga is more or less over. Maybe April is a good seasonally bullish month to expect this, looking forward.
Next Week
In the longer term view, we see the (orange) long term downtrend resistance line got broken up and now retesting back on it nicely.
Green - previous high near 4100 should be the key resistance to break before going higher.
Yellow - the neutral consolidating area between 3900-4000, I see this most likely for now.
Red - Right along the orange retest line towards 3800 as the bearish target, looking at momentum we might even break this.
Prediction
Follow the short term downtrend and bearish sentiment, I'm usually a lot safer in these prediction although sometimes not realistic.
SPX below 4100
Paper Trade
Let's continue using the iron condor and see if I can keep trying to catch where it will land.
This time I'm taking a tighter range between 3800-4000 with a pretty good risk reward ratio of 570:430 (1.33 : 1). I actually think this can be done more frequently, maybe even in a daily context. Just keep putting a 7 DTE iron condor to where I think it will land, so long as I keep risk reward controlled it's about being right enough times to be positive expectancy.
For now, lets just have fun paper playing it and lets see how I slowly evolve this into something feasible.