Best of the Battle Plan: Locking in Gains in SPY (SPY, SSO)

With ETF markets rallying back above their 200-day moving averages in September, Larry Connors alerted traders subscribing to his Daily Battle Plan service that opportunities to take positions on pullback were likely right around the corner. Specifically, Larry noted:

“We’ll continue to follow the same game plan as we do every day: buy oversold ETFs above the 200-day moving average and sell short overbought ETFs below the 200-day moving average. It remains the single best quantified strategy there is …

… Ideally, a few days’ pullback will allow us to take advantage of the many Country Fund ETFs now above their 200-day.”

A little under a week later, a potential opportunity developed in the ^SPY^ (as well among other major index ETFs), as the fund began pulling back above the 200-day. On the third consecutive lower close, with the SPY dropping into oversold territory, Battle Plan traders had the opportunity they had been waiting for.

SPY1 Chart

Bought on Thursday’s close at 112.50, the SPY had pulled back to its lowest level since breaking out above the 200-day moving average. The ETF was also at its most oversold since rallying above that critical level. By all accounts, it was a picture perfect pullback.

SPY2 Chart

And what followed on Friday was a picture perfect, oversold bounce, as traders and investors alike rushed in to take advantage of the oversold conditions that had developed over the past few days. The SPY closed higher by more than 2% on Friday, bringing quick profits to Battle Plan traders. Those traders who used leveraged funds to take advantage of the short-term weakness in the SPY, ETFs like the ^SSO^ (below), did even better in terms of percentage gains – as did many of those Battle Plan traders who use options to take advantage of the Battle Plan’s high probability trading set-ups.

SSO Chart

The profitable trade in the SPY brings Larry Connors’ Daily Battle Plan to a win rate of 81%, with 59 correct trades out of 73 total trades since October 2008.

81% correct in ETF trades since October 2008, Larry Connors’ Daily Battle Plan includes incisive market commentary, charts of the day, a Model Portfolio of past trades and daily pre-market audio commentary to help traders prepare for the trading day. For a free, 7-day trial to Larry Connors’ Daily Battle Plan, click here or call 1-888-484-8220 ext 1. today.

David Penn is Editor in Chief at TradingMarkets.com.