Reasons why I think SPY will keep going down going into 2023

Posted on: December 17th, 2022
By: Tadeo Martinez

I’m trying to come up with five reasons of why I think SPY will keep going down in the bear market and the possibility of a Santa Claus rally are out.

1.) My main reason is that after the Fed meeting, although there was only a 50 basis point rate hike, Jerome Powell said he’ll keep raising rates all through 2023 and not stop until 2024. Giving a negative sentiment to the market and having everyone fear a recession now.

2.) VIX is at $21.85 and the previous sell-offs happened when it was at around $21 or a bit lower, so it’s getting close.

3.) I’ve read a few articles that say a Santa Claus rally may not happen. Although this is a strong enough or concrete reason, more like hearsay.

My next action step is to look at the historical for SPY and see how it does at the end and beginning of each year. After that I’m going to look at all previous recessions, and see how long they lasted and study the chart patterns.


2021 => 2022 went up during Santa Claus rally, then sold off Jan 5th

2020 => 2021 went up

2019 => 2020 went up

2018 => 2019 went up after Dec 24th (Dec 24th seems to be a pivot date for other stocks as well)

2017 => 2018 went up (sold off in February)

2016 => 2017 went up

2015 => 2016 went down

2014 => 2015 went up (but with a lot of volatility for the month of December)

4.) After checking today, there seems a reversal to the upside, but we’ll see what happens after Christmas, as that’s usually when it goes up

Vertical Violations Can Help Avoid Bear Market

Here’s How To Spot A Market Bottom

SPY had a follow-through day on Jan. 4, 2019

Stock Market Tops

On a distribution day, the volume of trading in one or more of the major indexes, particularly the Nasdaq Composite or S&P 500, increases by at least 0.2% compared to the previous day, with the indexes closing lower.

If the price decline occurred on lower volume, it would be less concerning because it would indicate that the selling was not as intense. However, on distribution days, the significant price decline occurs with increased volume, indicating institutional selling.

With that in mind, the stock market has been selling off with higher than normal volumes.

Not Every Stock Market Follow-Through Works: 2 Red Flags To Watch For

Following a significant drop in the major indexes like the S&P 500 and Nasdaq composite, the follow-through typically involves a significant increase that occurs on the fourth day or later of a new rally attempt. This increase is usually at least 1.2%, but it can be as high as 3% to 4% or more.

We are now in the fourth day of the SPY declining, although the fourth candle seems like it could be a spinning top candle.

Trading data from November and December of 2018 has demonstrated that follow-throughs do not always lead to sustained market uptrends.

Pyramiding involves purchasing a stock in multiple installments rather than all at once. You can start by buying a first portion of the stock with half of your allocated capital. If the stock price increases by 2% to 3% from your initial purchase price, make a second purchase using 30% of your allotted funds. If the stock price increases by an additional 4% to 5% from the recommended entry point, use your remaining allocated capital to make a final purchase.

Check historicals from 2007 and 2008 for SPY. Check Oct. 16, 2008, Oct. 22, Dec. 2, January 2009 and March 12, 2009

How To Spot Major Stock Market Tops: Track The Distribution Days

Dec 13 had a higher volume than normal and a big sell of.

A distribution day is characterized by a significant drop in the Nasdaq or S&P 500 index, accompanied by higher trading volume than the previous session. According to IBD, a “significant decline” is a drop of at least 0.2%, without rounding up.

A distribution day is a sign of intense selling by institutional investors, who are major players in determining the direction of the market.

Four or five distribution days over a period of several weeks often indicate that stocks have reached their peak and are likely to decline.

There have four days of major selling with high volume but the RSI for SPY is low, does it mean it’ll keep going lower or start going up?

Distribution days: May 4, 2010, April 27, April 16, April 7

According to IBD’s research, distribution days should not be counted once 25 trading days have passed.

Stock Market Crash Always Precedes This Signal Of A New Market Bottom

Feb. 25 [2020?]

The follow-through signal tells investors when it is safe to resume buying high-quality stocks. According to O’Neil, who has been tracking this signal for over five decades, every bull market has started with a follow-through day.

The first day that the index closes higher is considered Day 1 of its attempted rally. The performance of the index on Day 2 and Day 3 is not important as long as the index does not fall below its recent low. If it does fall below this level, the rally attempt is unsuccessful and the market must try again.

Check historical for: March 17, 2003

William J. O’Neil: Live With Purpose, Learn From The Best

What Is A Follow-Through Day?

During a market correction, the investor looks for an attempted rally to occur. The first day of an attempted rally is marked by a major index closing higher than the previous session. The volume and size of the gain are not relevant, the only thing that matters is that the attempted rally persists.

If you look back in history, you will see that a follow-through day, which is marked by a significant increase in the market, often occurs early in every major uptrend. A follow-through day is seen as a sign that the market is starting to recover from a recent decline and that it is safe for investors to start buying quality stocks again. The presence of a follow-through day can be a good indication that a market uptrend is beginning.

Check historicals for all previous follow through days?

April 2, 2020. The index bottomed out on March 23, 2020

Why A Breakout Is Like A ‘Get Out Of Jail’ Card For Leading Stocks

Oct. 17, 2019

Six Additional Things to Consider When Evaluating a Strong Stock Breakout

  • A breakout happens after a stock has remained within a certain price range for an extended period of time, which can be several weeks or even months.
  • For a breakout to be considered valid, it typically needs to be accompanied by strong trading volume, which is often more than 40% and can even be more than double the average volume. In the case of large-cap stocks, the required volume may be lower.
  • The stock’s price should move above the old trading range (with the exception of bases that have a lower buy point) during the breakout.
  • The breakout should be clear and undeniable when viewed on a stock chart.
  • The breakout should occur while the overall market is in a confirmed uptrend, as a positive market environment can help boost the stock’s performance.
  • After a breakout, the stock should not drop more than 7% to 8% below the recommended buy point. If it does, this is known as breaking expectations and would trigger the golden rule of investing.

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