I SPY a dip

Just before the close, I got some SPY Jan 20th 223/220 Put Spreads for $.94 each. Here's why:

- After the recent swing high, there was a period of consolidation (12/16/16 - 12/27/16) followed by a break out to the downside.

- Two days ago, the daily candle formed a bearish engulfing signal after a doji, and closed below the daily 8 EMA.

- Todays candle closed even lower and formed a Doji Sandwich, using today's candle and the previous two days. This pattern suggests more downside.

- Today we closed below the 20 day SMA (green).

- The DI- crossed up over the DI+ (see the ADX/DMI subchart).

- I don't pay too much attention to volume as an indicator but you can see there was the most volume in the last 9 trading days (see volume subchart). This is another confirmation the other bearish signals are for real.

I see possible support at the 50% Fib, which is close to the 50 daily SMA (red), which is close to the bottom Bollinger Band (light blue), which also is close to previous resistance/support between 11/25/16 - 12/6/16. 220 is a conservative target.

The risk is the cost of the spread, $94 each. The reward is most of the width of the spread 223-220 = 3. So, the risk:reward is approximately 1:3, which is fine. And of course, my total risk is limited to the cost of the spreads, which I can keep to 2% of my account or less. If you want to risk 2% of your account, you just multiply .02 by your account balance, then divide the answer by the cost of one spread. For example, if you have $30,000 in your trading account, then .02 x $30K = $600. And $600/$94 = 6 option spreads.

I entered 2 exit orders. One at $2.90 limit order if the value of the spread gets that high. The other is when SPY share price drops to 220. I think price will go down to at least the 50% Fib at 218.36 but possibly after a bounce off the 50 day SMA (red), which could create a significant time delay while price rolls back over. So, I'll go with a more conservative target of 220 for SPY.