Aries Profits

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An online school teaching data-driven trading & investing—built by experienced FinTech educators in a way such that even beginners can learn.

Our mission: democratize financial education so you can make smarter decisions with data.

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The RSI helps gauge market momentum. When it breaks above 70, a pullback may follow. Below 30? Price might change course suddenly. Maybe it's time to check your position in the stock. 

When the MACD line crosses above its signal line, it shows a shift from bearish to bullish momentum, meaning it's time to look for entry opportunities. Got any stocks on your radar? Drop them in the comments below.

Ed Thorp was one of Wall Street's pioneers, turning probability into profit—first at the blackjack tables, then on Wall Street. His use of math and markets helped lay the foundation for many quantitative strategies today.

As big indices like the S&P 500 are approaching the bear market zone and it's unknown as to how much longer and how much further down they can go, an effective strategy to protect your current portfolio is by longing put contracts using beta-weighting.

In a bear market, the majority of stocks would decline in price depending on their beta correlation to the S&P500. For example, if the stock Coca-Cola (KO) has a Beta of 0.6, then a 1% move in the S&P 500 leads to a 0.6% move in KO. First, we sum the market value of all the stocks in our portfolio. Second, we calculate the beta-weighted value of each stock by multiplying their market value with Beta correlation with SPY, then sum them all to get the beta-weighted value of our portfolio. In this example, we are hedging $81400 worth of stock shares by longing put contracts on $61750 worth of SPY. Third, we find the number of SPY put contracts to long by dividing the beta-weighted value of our portfolio by the SPY price per share, then dividing the result by 100. which is currently ($61750/ $514.23)/100 ≈ 2 contracts. Lastly, specify the strike price of the put contract (i.e., 1 strike In-the-Money) and the expiration date (i.e., at least 90 days from now).

This strategy is effective for hedging against portfolio drawdowns during a bear market - as the value of your portfolio drops, you'll get the chance to sell SPY at a higher pre-drop price to cover the portfolio losses. Otherwise, the maximum amount that you'll lose is just the total premium you paid to obtain the contract ($1430 in our example). At contract expiration, you can expect a payoff graph illustrated in the second picture here.

Post-"Liberation Day" Trade: Gearing Up for the Worst.

There have been 4 instances in the past decade where SPX made a significant pullback. 3 out of the 4 pullbacks have exceeded a 20% drop, which indicated a transition into a bear market cycle. Unsurprisingly, the pullback today is at roughly 20%, with the potential of going lower. But how low can it go?

Historically, all 4 pullbacks came very close to or penetrated below the 50-period Simple Moving Average (SMA) level on a monthly chart, and it seems that we're approaching our 5th. So it may be reasonable to assume some sort of buying pressure lined up around such a level, which is 4672.58. The price pullback now is at the 61.8% Fibonacci retracement level, historically a common depth of retracement before a rebound pursues. From this evidence, along with some other indicators (e.g., Williams % R, Money Flow Index) not pictured here, the market seems to be coming close to some buying level. However, this just means that there's a high chance buyers will start accumulating shares soon, but does not mean that the market is guaranteed to exit the bear market phase.

If SPX indeed bottoms at around the 50-period SMA support level, how much longer does it need in order to recover back to its pre-retracement level? It's again reasonable to take the 21.74% and the 35.07% retracements as references, not only because of their similar drop magnitude and support levels, but because of the abruptness of their drops. Historically, the closer the price drops at a 90-degree angle, the faster their rebound - generally the duration of recovery is similar to the duration of pullback (Terry Laundry, T Theory, 2008). For instance, if this pullback takes 7 weeks to bottom, then it's likely to take 7 weeks to recover. At least, this seems to be the nature of market moves.

Tomorrow is April 2nd, which Trump claimed is the day to roll out another set of tariffs. While we can expect cost impacts on sectors like materials, industrials, consumer discretionary, and technology, chances are that these impacts might not necessarily be reflected through market drawdowns. See, historically, 3 out of 4 times, the market was already at or near the bottom of a retracement following Trump's tariff announcements, gaging some degree of upshot. In fact, the market was at its 10% pullback bottom almost a month ago when Trump announced tariff plans for China, Canada, and Mexico. On top of this, over half of these sectors are going through sector rotation (i.e., from monthly bearish--> bullish). An example is the consumer discretionary sector which was down 5.04% last month but starts hitting significant buy levels this week. Most likely, sentiments have already been distributed in market auctions throughout the past month or so, and consumers have accepted the costs to bear on these sectoral goods in the coming days, months, or years. (Although funnily, nobody seems to have accepted inflation as a whole). Let's see if the market argues against this.🙃