Probability Map May 17

Meta Strategy Derivatives Portfolio – Probability Map Update.

— Updated May 20, pre-market —

Last week we saw a fast 5,2% drop from all-time highs, followed by an equally quick 3,7% recovery.

So far, this perfectly mirrors the typical pattern that is often seen in the beginning of larger pullbacks: a fast drop to an initial low is followed by a strong bounce, which then falls back to the initial low or makes a lower low.

This high probability pattern is systematized in the “Retest of Low After Retracement in Pullback” trade setup.

All eyes are on inflation, and the path of a strengthening FED taper narrative will likely be the main influence for stock prices over the next months. As long as liquidity flows unimpeded, the buy-the-dip mentality will probably prevail.

But, conversely, the slightest sign of tightening conditions should see strongly negative reactions in equity markets, and leveraged positioning will suddenly matter.

As usual, I map my current data-driven estimates of the probabilities for future returns of the S&P 500 over the short, medium, and long term.

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