September 13th, 2022 was a perfect example of the value of knowing how the stock market might open the next day. Even more so the data behind the prediction. Stock market predictions are everywhere. Technical analysis, artificial intelligence, and algorithms of all stripes offer insight.
The spytomorrow.com algorithm(s) shows the underlying pressure or mood of the market before the close, which usually correlates to the market opening the next day.
On September 12th before market close, the above set of panels was displayed for members of Spy tomorrow. The three algorithms B6v, E6v, and D6v were all solidly higher. The confidence level was the highest we’ve seen since the launch of this algorithm version, and the Grand (all) was over 50 which is a solid pressure signal.
However, the highly anticipated CPI report was coming out the next day. The expectation was to see inflation lower year over year. If so, the market has reason to celebrate. Still, from the cynical side you could see the setup for failure after four days of positive market closes and such positive expectations.
In the Spy Chat and Twitter (below) we talked about these expectations. Whenever the pressure is this high, there is a much greater chance of the algorithm being correct. However, with such pressure, if anything disappoints the market, we know based on experience that the result of such disappointment can get ugly.
Knowledge is power. This allows us to prepare.
This is exactly what happened. The morning premarket started as expected with the $indu up about 200 points. Then the report was released at 8:30.
Inflation was higher than expected, giving the green light for the Fed to continue its aggressive rate hikes. By the end of the trading day, the $indu was down 1276 points – almost 4%, $spy was down over 4.25%, and the QQQ down about 5.5%. An ugly day.
The Case For A SPY- T
In such situations, a SPY-T trade is a good option. A SPY-T is an overnight swing trade, using an options ratio of 2:1 in the direction of the spy tomorrow signal. A system design for days like September 13th. If we had a positive CPI number we would profit, if the market crashed, we would profit.
There is more than one way to play both directions of the market. However, when the call is usually correct, SPY-T offers more profit opportunities on such days. In comparison to a straddle, for example.
The Next Day
After such a horrible day, a prediction that the market will continue its slide seems reasonable and justified. However, in such cases, it’s helpful to keep emotion out of your predictions, actions and follow your favorite unbiased indicators.
At the end of the trading day, as the market continued down, the reading for the following day was counter-intuitive showing up pressure (below). Meaning we could open up or find our way positive in the first half-hour for a successful trade. This doesn’t mean it will stay up, yet based on the pressure reading, there is a good chance it will not be another tragic open.
On the morning of September 14th, the $spy premarket was up most of the morning, and after the 8:30 am economic reports it remained up to open positive.
The Future of SPY Tomorrow
As far as the algorithm(s) goes, right or wrong the following day, they are doing their job well predicting the current pressure. They measure the pressure or mood of the market at the end of the day, then we cross our fingers hoping nothing changes the mood. However, it would be nice to have a regularly updated pressure reading throughout the day. Especially for day traders.
Offering more data to work with and implementing a regularly updated or real-time pressure reading is the ultimate goal. I have programmers ready to go, however, we need enough members to justify the cost of the API pulling in the data each day and the cost of programming such a service.
The current version has taken 2.5 years to create, I’ve automated much of the process, however, about 20% of it is still manual pulling of the data.
I’m not the best trader in the world. However, it’s been helpful to have these readings to guide me toward profitable trades. That’s why I share them with you.