SPXS- Bear is the new Bull?
**Disclaimer**: This analysis provides an overview of the historical performance of SPXS and highlights potential trading strategies based on observed patterns and volatility. However, this is not financial advice, and past performance is not indicative of future results. Traders should consider broader market conditions and any upcoming economic events when making decisions.
### Technicals
- Seasonality
- RSI Support & Resistance
### **Bearish Seasonality in August and September**
August and September have historically been bearish months for the broader market, which tends to be bullish for SPXS, given that it is an inverse ETF of the S&P 500. This inverse relationship provides opportunities for traders looking to capitalize on negative market sentiment during this period.
The upcoming Federal Reserve meetings on **September 17-18** and **September 19-20** may significantly impact market movements. The chart currently shows a **double bottom** pattern, a bullish reversal signal, which could indicate further upside potential for SPXS if confirmed by the market’s reaction to the Fed's decisions. Though it is likely that they will lower rates, which is bullish for the market, and bearish for SPXS.
---
### **Key Statistics for August and September**
- **Returns**: SPXS tends to perform well during market downturns, particularly in August and September, as volatility spikes. The maximum percentage increase in these months has reached substantial levels.
- **Max % Up**: Historically, SPXS has seen maximum gains of **up to ~30% in September**, making it an attractive vehicle for traders expecting bearish trends in the broader market.
- **Volatility**: SPXS’s volatility remains elevated in August and September, allowing for significant swings in both directions. Traders should be cautious but could benefit from these sharp movements, especially when combined with proper risk management.
---
### **Probability of a Breakout**
The chart displays a clear **double bottom pattern**, a common bullish reversal indicator. The probability of a breakout depends on multiple factors, including broader market sentiment, technical resistance levels, and upcoming economic news such as the Federal Reserve’s meetings.
Historically, double bottom patterns have a success rate of around **70%**, meaning that when the price breaks above the resistance level, there is a strong chance of an upward move. Given the market conditions, the bearish seasonality of August and September further supports the potential for a bullish breakout in SPXS.
---
### **Setting Stop Losses**
Risk management is crucial when trading SPXS due to its volatility and leveraged nature. Here are some ways to set effective stop losses:
1. **Tighter Stop Loss**:
- For more conservative traders, place a stop loss just below **$7.297**, which is the pivot level. This may reduce risk but could also lead to getting stopped out in case of minor volatility.
3. **ATR-Based Stop Loss**:
- Using the **Average True Range (ATR)** as a volatility-based indicator, you could set a dynamic stop loss. If the ATR is **0.50**, for example, place your stop **0.50 to 1.0 points** below the breakout level.
---
### **Risk Management: Kelly Criterion**
Given that the average return in September is **2.23%** and the positive probability (Pos%) is **47%**, managing risk with a structured approach is essential. The **Kelly Criterion** helps determine the optimal position size based on probabilities and expected returns, balancing growth while minimizing risk.
The **Kelly Criterion formula** is:
\[
f^* = \frac{bp - q}{b}
\]
Where:
- \( f^* \) is the fraction of capital to allocate to the trade.
- \( b \) is the odds of winning, which can be estimated by the average return (2.23% or 0.0223).
- \( p \) is the probability of winning (47% or 0.47).
- \( q \) is the probability of losing (1 - p = 0.53).
**Applying the Kelly Criterion**:
1. Estimate the odds of winning: In this case, the average return for September is 2.23%, so:
\[
b = 1 + 0.0223 = 1.0223
\]
2. Winning probability:
\[
p = 0.47
\]
3. Losing probability:
\[
q = 0.53
\]
Now, applying the Kelly formula:
\[
f^* = \frac{1.0223 \times 0.47 - 0.53}{1.0223} = \frac{0.4801 - 0.53}{1.0223} \approx -0.0488
\]
Since the result is negative, the Kelly Criterion suggests **not placing a trade** in this scenario, as the negative expectation would not justify the risk. However, many traders use a **fraction of the Kelly Criterion** to limit exposure to volatility. A **half-Kelly** strategy, for example, would mean investing around **2-5%** of capital, adjusting for risk tolerance.
---
### **Conclusion**
For those looking to take advantage of bearish trends in the broader market, August and September have historically provided favorable conditions for SPXS. The upcoming Federal Reserve meetings may act as key catalysts for further upside, particularly if the market reacts negatively to any interest rate decisions, potentially confirming the double bottom pattern.
However, given the high volatility associated with this period, it is critical to manage risk carefully and stay updated on macroeconomic developments.
### Technicals
- Seasonality
- RSI Support & Resistance
### **Bearish Seasonality in August and September**
August and September have historically been bearish months for the broader market, which tends to be bullish for SPXS, given that it is an inverse ETF of the S&P 500. This inverse relationship provides opportunities for traders looking to capitalize on negative market sentiment during this period.
The upcoming Federal Reserve meetings on **September 17-18** and **September 19-20** may significantly impact market movements. The chart currently shows a **double bottom** pattern, a bullish reversal signal, which could indicate further upside potential for SPXS if confirmed by the market’s reaction to the Fed's decisions. Though it is likely that they will lower rates, which is bullish for the market, and bearish for SPXS.
---
### **Key Statistics for August and September**
- **Returns**: SPXS tends to perform well during market downturns, particularly in August and September, as volatility spikes. The maximum percentage increase in these months has reached substantial levels.
- **Max % Up**: Historically, SPXS has seen maximum gains of **up to ~30% in September**, making it an attractive vehicle for traders expecting bearish trends in the broader market.
- **Volatility**: SPXS’s volatility remains elevated in August and September, allowing for significant swings in both directions. Traders should be cautious but could benefit from these sharp movements, especially when combined with proper risk management.
---
### **Probability of a Breakout**
The chart displays a clear **double bottom pattern**, a common bullish reversal indicator. The probability of a breakout depends on multiple factors, including broader market sentiment, technical resistance levels, and upcoming economic news such as the Federal Reserve’s meetings.
Historically, double bottom patterns have a success rate of around **70%**, meaning that when the price breaks above the resistance level, there is a strong chance of an upward move. Given the market conditions, the bearish seasonality of August and September further supports the potential for a bullish breakout in SPXS.
---
### **Setting Stop Losses**
Risk management is crucial when trading SPXS due to its volatility and leveraged nature. Here are some ways to set effective stop losses:
1. **Tighter Stop Loss**:
- For more conservative traders, place a stop loss just below **$7.297**, which is the pivot level. This may reduce risk but could also lead to getting stopped out in case of minor volatility.
3. **ATR-Based Stop Loss**:
- Using the **Average True Range (ATR)** as a volatility-based indicator, you could set a dynamic stop loss. If the ATR is **0.50**, for example, place your stop **0.50 to 1.0 points** below the breakout level.
---
### **Risk Management: Kelly Criterion**
Given that the average return in September is **2.23%** and the positive probability (Pos%) is **47%**, managing risk with a structured approach is essential. The **Kelly Criterion** helps determine the optimal position size based on probabilities and expected returns, balancing growth while minimizing risk.
The **Kelly Criterion formula** is:
\[
f^* = \frac{bp - q}{b}
\]
Where:
- \( f^* \) is the fraction of capital to allocate to the trade.
- \( b \) is the odds of winning, which can be estimated by the average return (2.23% or 0.0223).
- \( p \) is the probability of winning (47% or 0.47).
- \( q \) is the probability of losing (1 - p = 0.53).
**Applying the Kelly Criterion**:
1. Estimate the odds of winning: In this case, the average return for September is 2.23%, so:
\[
b = 1 + 0.0223 = 1.0223
\]
2. Winning probability:
\[
p = 0.47
\]
3. Losing probability:
\[
q = 0.53
\]
Now, applying the Kelly formula:
\[
f^* = \frac{1.0223 \times 0.47 - 0.53}{1.0223} = \frac{0.4801 - 0.53}{1.0223} \approx -0.0488
\]
Since the result is negative, the Kelly Criterion suggests **not placing a trade** in this scenario, as the negative expectation would not justify the risk. However, many traders use a **fraction of the Kelly Criterion** to limit exposure to volatility. A **half-Kelly** strategy, for example, would mean investing around **2-5%** of capital, adjusting for risk tolerance.
---
### **Conclusion**
For those looking to take advantage of bearish trends in the broader market, August and September have historically provided favorable conditions for SPXS. The upcoming Federal Reserve meetings may act as key catalysts for further upside, particularly if the market reacts negatively to any interest rate decisions, potentially confirming the double bottom pattern.
However, given the high volatility associated with this period, it is critical to manage risk carefully and stay updated on macroeconomic developments.
Note
Another 5% today and we're about to hit that R4 which across assets, tends to be the strongest resistance.
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