Alberto Costa uses The Big Short to frame a technical breakdown of SPY. A large down candle broke the 100-day moving average, and the next critical level is around 308, where horizontal support and the 150 MA have converged roughly 7 times. If that fails, the 200 MA signals a potential bear market.
Questions this video answers
SPY (ETF tracking the S&P 500).
Around 308 (confluence of horizontal support and the 150-period moving average).
The 100-period moving average.
About seven times.
The 200-period moving average.
Chapters
Boom. Have you ever watched the movie? The Big Short is a movie describing the situation of 2007, 2008, when there was this crisis. The US market went down a lot. And if you have not watched the movie, I really suggest you to watch it because it's really, really good. And there is a scene of that movie that I really like where there is Mark Bohm that is one of the main characters and he is on stage at a conference with another guy. So the other guy is a very bullish guy, very confident. The typo, you know, everything is going well, no fear, just buy more, right? And Mark Bohm is not on the same advice, actually. He's telling people that there are a lot of issues, the mortgage, everything that you know, and is telling that the market is going to crash because the situation is not sustainable. And when they are on stage, there is another guy from the audience raising hand and he's like, you know, guys, from the time you start to speak, the stock you are talking about went down 38%. And so the bullish guy is like, oh, yeah, but it's fine, actually, I can buy even more. And at that time, Mark Bohm is like, boom. And when he said boom, people in the audience stand up, they run away, they exit the room and everyone is looking at their phone with the updates and the price is going lower and lower and basically was the crisis and the rest is history. So why am I citing that scene? That actually I will put the link for that scene in the description. The reason is that many of you, when they open, you open the account that you have trading, charting, whatever, and you see this huge candle may have felt the same boom is over, you know, another 3% down. My God. But if you watch my video yesterday, you know that this is one of the scenarios that we had anticipated because we said this is a strong support, remember? And it can be a support, it can stay as a support. So the price can bounce up or maybe stay there for a while. The support is tested, but if the support is not, it doesn't hold. And then the price will break down like it did, especially with a high volume. Then what should we look for? Well, There is the 100 moving average that was broken as well. But the next area of support is here around 308. And why did I say that this was the next level to watch? Because there is this horizontal support. And let me show you, there is a horizontal support here. And there is also the three, sorry, 150 moving averages. That is the green line here. And this is a confluence of two strong support. Why? Because first we have this one, as I said, I made a video about horizontal support and resistance that you can watch if you are confused. But then why this 150 moving average is a strong support? Because if you look in the past it was tested many times. See here, here and again and again and again. And when I say tested means that the price is hitting that level and then bouncing back. So since it was testing seven times, see this is a strong support. And because it's a strong support and there is this confluence with the horizontal support, I will watch this level that is around 308. Okay, here I'm watching the spy, the ETF, tracking the S&P 500. So if the price is hitting this level and bouncing back, then maybe the trend will continue up. If not, then we have to look at the next support area. That is probably the red line, the 200 moving average. If the red line is also broken and the price is going down and the red line starts to slope down, then this may be an indication of bear market. Meaning to say, if you are a trader, start to look for short positions. So what to do now, similar to yesterday, are you a trader? Well, let's wait. What happens if the price will actually bounce on that support or not? If it bounces back, then probably we can see the trend continue to go up and then we can look for long positions. Or again, if you want, you can look for positions in other markets like ETFs that are not correlated strongly with the S and P. If you're an investor, you should be super happy because now is one of these opportunities to buy at a discount. You have your shopping list. You have your list of all the stocks that are strong but maybe they were overvalued. And now that the price is going down, you may have the opportunity to buy below intrinsic value. That is what you want to see. If you're an investor, you want to accumulate stocks at a low price so you can do that. You can start to buy on stage if you want to be a little more conservative so you can buy a little more next time that you see the drop and not buy the full position. Now this is also possible, but again the idea is, and I want to underline the difference between trader and investors. If you're a trader, now is the moment in my opinion to do nothing, to wait or as I say, look for opportunities in other markets that are uncorrelated. If you are an investor is a time to look at your shop list, look at your list of stocks that you would like to have at a lower price and maybe it's time to really buy and build your portfolio. So with that I thank you again. Let's see what will happen if that support 308 will hold or not. If you like this video, you can put a like hit the subscribe button if you have not yet done so. And also the notification bell to be notified for new videos. As usual, see you next time.
