YouTube video by Alberto Costa analyzing a recent ~7% drop in SPY (S&P 500 ETF) from ~293 to ~270, explaining technical signals (price closing below the 200-day moving average, lower highs/lower lows, slopes of 50/150/200 MAs) and giving different responses for long-term investors (buy at support near ~260 or hedge) and short-term traders (seek short setups or use inverse ETFs/options). The creator also mentions inverse/leveraged ETFs (e.g., SH, SDS) and other hedges like gold.
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Welcome everyone to this new video. Today I want to discuss the recent drop in price in the U.S. market. What you can see here is the SPY, the ETF tracking the S&P 500 index. And as you can notice we move from a high up 293 to yesterday 270. That is around 7% drop. Now why is this drop important? For a few reasons. As you can see here in February also we got a big drop. But there is a difference. As I've said in previous videos, the 200 moving average is a really strong support. And you can see here, let me show you the 200 moving average is this red line. And you can see that this was a strong support here, here and also here. Support means that the price went down and then bounced back. And same here and then the uptrend continue. What is the difference now? Now the price closes below the 200 moving average. If you remember, one way to determine if the trend is up or down at least the medium term is to look at the 50, 150 and 200 moving average. And we said in previous videos that when the 50 moving average is below the 150 and both are flat or sloping down, this is a signal of downtrend. Or when the 200 moving average is flat or sloping down, this is also a signal of downtrend. And we take the first coming now here the 50, this blue line is still above the 150, the green line. But the price is below the 200 moving average and the moving average is flat or actually sloping down. As you can see from here I wrote a code to print the slope of the moving averages. In addition, notice that here, let me zoom in to show you. Here we have another interesting pattern. The high that we had here is higher than this and the low is also lower. Meaning we start to have lower high and lower low. This is usually a sign of downtrend. In other words, we have two indications that the trend is changing. So what shall we do? Well, it really depends on your trading or investing strategy. If you are long term investor, you may have now some unrealized losses in your portfolio. But the idea of long term investing is that you want to hold for the long term. So in theory you should not sell. Now what can you do when the price finds some support? This could be for you an opportunity to buy. Ok, and where is a possible support level? Well, let's look at the chart. If you see here it seems that around this level that I would say is around 260 the price bounced many times. So 260 may be a first level of support. Meaning if the price is hitting this level and then you see some kind of reversal sign, some bullish candle and the price start to go up. This may be for your long term portfolio, a sign, an indication to buy more. But if you are just looking at a way to somehow hedge your unrealized losses, then you may look at other instruments. For example, there are in the, in the US market some ETFs that are inverse or better. They are tracking with a negative correlation, the S and P. And there is a website here, you can see the link here, but I will post it below the video where you have a list of these inverse ETFs. And there are inverse ETF for the Dow Jones, for the S and P and many other things. They even have Ultra and Ultra Pro. What does it mean? Basically these are using leverage. So let's say you want something that is tracking inversely. The S and P is called sh. But what about this guy sds, the ultra short S and P. This is something that is tracking the S and P inversely but two times. Meaning if the S and P is going up 1%, this guy is going down 2%. In theory, the Ultra Pro is the three times. So in this website you can find a lot of ETFs tracking different things. And of course we also have the gold and silver. Gold and silver or other. Or other ETF like that can be also a way to hedge your portfolio. So for example, this is the S and P. Again, if we look at the inverse etf, you see that it's actually doing the opposite. It's now going up. Okay, so again, if you are a long term investor, this may be an opportunity to buy when you see some support. But for now the price is still going down, making lower high and lower low. So I would say at this moment it's not yet safe to buy. Or if you want to hedge again, you can use inverse ETFs. You can buy something that is negatively correlated with the S and P, like gold for example, if you don't have in your portfolio. Or you can use options if you are more advanced traders. What if you don't have a long term portfolio but you are a short term trader? Well, in this case, since we have a signal of downtrend now it's time to look for short setups. In other words, we should look, we should scan the US market to look for possible companies that we want to short. And I may make a video in the future to show you how you can scan the US market to look for short opportunities. Alternatively, you may scan for long and short opportunities on the ETFs because some ETFs you can go long if they are not correlated with S and P as we have seen, for example the inverse ETFs. But there are ETFs tracking many things from different countries to different sectors. So if you have a way to screen the market for long setups and you find something with a good setup to go long that is not correlated or inversely correlated with S and P for a short term trade, it could be a good idea. So to recap, yes, the market is now in a downtrend. No need to panic, you just need to know what is your objective. If you are a long term investor, this can be a good opportunity to buy. Or if you want to protect your unrealized losses, you should hedge. If you are a short term trader, you just need to stop taking long position that are correlated with S and P if you and start to look for short positions that I will share in next video. So that's all for today. Thank you for watching and if you like this video and you want to be updated when I release new videos, please subscribe to this channel and see you next time.
