Okay, so the following was my thinking on this trade.
As many already know from other threads on this board, I have been looking for a put trade, ideally on a weak Mag 7 stock that I would enter as SPY was looking like it was going down. The idea being that if SPY is going down, then a weak stock will go down even more. But the action this morning had me thinking twice. Looking at SPY, it traded back up into the 9/21 gap that it had not yet fully filled. SPY met resistance on 10/10 and 10/12 and turned down further each time. This made an odd chart pattern. SPY was up from the 10/3 bottom and began to form a flag consolidation which is normally bullish, except that the flag was not right. Most flags are either parallel left to right, or are triangular starting wider and getting narrower going right. This one starts narrow and gets wider as it goes. Normally you think of a flag consolidation as a reduction in volatility where movement slows down for a while before continuing up (or down). This widening flag is actually increasing volatility which is not right for continuation. To me it feels like a reversal which reinforces the bearish bias I already had.
Here’s a 60-min chart that shows enough time to see the general ups and downs:
As indicated on the chart, I consider the up move from 10/3 to 10/10 to be volatile and bearish. A lot of people would say that the action on 10/6 and 10/9 was volatile only in that it was strong up and that is obviously bullish, not bearish. But as I’ve said many times in these threads, I disagree. If you move up too strong that can definitely be viewed as bearish. The action today was another strong up move, but it was stopped again in the middle of the 9/21 gap. SPY has now put in multiple tops basically in the middle of the 9/21 gap while putting in a 4-point+ negative divergence on both oscillators. Ordinarily, you want to have higher-highs in order to truly be divergent, but relatively equal highs can be viewed as a double or triple top which is also a valid reversal pattern, so this divergence is valid. My prediction is that the price moves down eventually below the October lows.
But I could also be wrong. SPY could also be consolidating this afternoon for a break above resistance. If it breaks resistance, it could fill the rest of the gap (which is not much more) and keep going up another 10 points. So I decided that the safest play, especially given that I had to leave for a while this afternoon and wouldn’t be able to watch it, would be to enter a strangle which is what I did as I posted before. This chart shows my entry marked as “S” for Strangle. As the chart shows, we didn’t get any significant moves this afternoon so I’m holding. I’m hoping to be out within 2 or 3 days, but a huge move tomorrow morning that gets me out in a day would be just perfect as far as I’m concerned. 