Scott Redler: Using Multiple Scenarios to Find a Path Forward

October 23, 2018
/ By Scott Redler

We came in facing some ugly headlines this morning:

At times like this, I try to avoid marrying an opinion. I let the price action guide me, because price is how we get paid.

I came in today focused on SPX 2710 (the October low prior to today), telling CNBC's Patty Domm “it could be bullish if it breaks below and then reclaims it and has a strong finish.

Early this morning, I showed in a chart how holding above 2710 could mean the market puts in a 2X/W bottom:

And I laid out three equivalent scenarios in SPY to Redler All-Access readers before the open:

A) $270.36 is the 10/11 low. We hold above it and try and rally.

B) We get and stay below $270.36 to probe to the downside with another leg lower. $268.49 is below, then $265.15.

C) We get below $270.36 and then reclaim it for a Red Dog Reversal-type bounce attempt.

Then, I'm free to react to the scenario that plays out, instead of locking myself into an opinion beforehand.

Now let's go to the chart to see what actually happened:

As you can see on the chart, the SPX plunged at the open and made a new October low of 2691.43. But then it rebounded back above 2710 to 2746. (as of the afternoon)

SPY broke below $270.36 and reclaimed it, and it's now over $274.

Let this be a lesson: don't get locked into an opinion to the point where you can't react to what's happening. Keep multiple possible scenarios on your radar so you can grab opportunities as they come.

Positions Disclosure: As of October 23, 2018 at 2:46 p.m. ET, Scott J. Redler is long SPY, CRBP, TWTR calls, FB calls, CAT calls, GWPH Calls

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