When Ambivalence Equals Edge
There are times where it’s totally appropriate to be ready to trade from
‘either side.’
Some people might think of this as a kind of ambivalence–and it is to a certain
extent, but more importantly it’s a trade with edge when the conditions are
right.
When tight consolidations such as Slim Jims set
up near highs in strongly trending issues, we normally look to participate long
on an anticipated breakout above resistance. This is an example of a
continuation entry as we look to enter the dominant trend after a pause in the
action, and would probably be labeled the most basic type of entry from this
type of pattern.
But, when situations such as the broader market
become more complicated–it’s time to think outside the box, and be willing to
use the pattern from ‘either side.’ Slim Jims, when used in conjunction with key
levels, can often be traded out of either side of the pattern (i.e., shorts on
pattern breakdowns and longs above formation resistance).
Today in the S&P500 ETF
(
SPY |
Quote |
Chart |
News |
PowerRating) we have
a classic example of what I consider to be a high-probability trade ‘out of the
pattern.’ With key levels penetrated, the Slim Jim that ultimately formed, did
so at what now looked to be resistance. This was a textbook example of ‘support
becoming resistance’ in action. The fact that key technical supports had been
penetrated, and the subsequent pattern was now finding resistance at these same
levels, from below, favored a downside break of the consolidation–which would
result in a short trigger.
But, here’s the twist: Levels were broken, but many
times ‘when panic is in the air’, key supports do get penetrated on an intraday
basis. Assuming that these conditions more or less existed in today’s trade, the
fact that the Slim Jim had found its way back up to these levels was something
to respect–if broken to the upside. The potential for a springboard effect,
right back thru those ‘key daily levels’ would likely produce a wave of
technical buying–and thus our reason for being ready for reversal longs as
well.
09:13:36
Pre-Market Levels: Potential technical
support/resistance based on Fibonacci Analysis, EMAs, Pattern, and prior Price
Support/Resistance levels
|
SPY |
SUPPORT LEVELS | 104.56 – 104.80 = 3 Levels & 1 VB 103.90 – 104.05 = 3 Levels & 2 VB |
09:37:39
Intraday Setup Alert
The S&P500 ETF (SPY)
is forming a potential
Opening Reversal on the 5-minute chart. With the market proxy off by .63 at
104.81, the SPY is trading down into an awareness zone with ‘three layers’ of
technical support consisting of Fibonacci analysis, prior pivot daily lows, as
well as the 1 VB. This action also has the ETF forming a ‘broadening formation’
on the 30-minute extended chart.
…and then the willingness to play it from
either side as the edge evolved into something more interesting.
11:08:30
Intraday Update
The S&P500 ETF (SPY)
has formed an intraday consolidation pattern (either a
1,2,3 or
Slim Jim), with session lows just fractionally below key supports outlined
in our earlier analysis. As this consolidation held at key levels we were
looking for position longs out of these patterns initially–but this also sets
up the stock as a potential continuation short if support is broken, as the
50-Day EMA looks to be the next level of support. The SPY is off .95 at 104.52
You might want the market to go up, but if price
action says otherwise, I’d rather keep action it in the bank, rather than in my
head. Respect those high-probability times where it pays to play your friend Mr.
Slim from either direction–because it’s one ‘love-hate’ decision that you’re sure
to like a lot.