Here’s The SPY Framework For Thursday
The
SPX
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PowerRating) and Dow
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PowerRating) finished slightly green,
while the Nasdaq
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PowerRating) was red
at -0.3% and the NDX 100
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PowerRating) -0.6%. NYSE volume for the last day of
the year was 1.07 billion. The volume ratio was 61, and breadth +863, certainly
better than what the SPX and Dow indicated closing at +0.4% and +0.1%.
It was another excellent
reversal trend move in the S&P 500. On Monday before the
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PowerRating)s closed in
the top 25% of the range, it took out Friday’s low of 87.38, thus shaking the
tree and setting off stops. This set up the RST with entry above 87.33, which
ran to 88.47, and closed at 88.11. Tuesday we got a repeat as the SPYs opened at
88, then traded down with an accelerated emotional reaction to the 10:00 a.m.
Consumer Confidence number. This emotion carried down to take out Monday’s 87.22
low, hitting an intraday low of 87.11.
There were two setups
that followed. The first was a 1,2,3 lower bottom long pattern with the entry on
the reversal above Monday’s 87.22 low. Initial stop placement was below the
87.11 low. The second was the RST buy with entry above 87.38. This trade ran to
88.47 before closing at 88.21. You could make a good living off the Mickey Mouse
futures selling by the amateurs on these economic numbers that no one remembers
a day later. The Generals sure as hell don’t start selling stock because of that
economic number. That game belongs to the S&P pit locals who shake the tree and
the stops below the previous day’s low, then they run like hell to cover. They
have to cover fast because they don’t have the capital to do otherwise.
I think that most of you
should make a New Year’s resolution to better prepare for each trading day, and
that starts with a top-down approach, beginning with the major indices.
Let me share my thoughts
for today using the SPY as an example. On Friday, the SPY had a triple-top and
triple-bottom closing range, with the tops at 88.42, 88.43, and again at 88.43.
The bottoms are at 87.94, 87.94 again, and 87.88. A breakout of the range
measures to about 88.93 on the top and below to 87.41. I then do the Fib
retracement from yesterday’s 88.43 high to the 87.11 low in case the SPY opens
down. The .38 is 87.93, the .50 is 87.77, the .618 is 87.61, the .707 is 87.50,
and the .786 is 87.39. You now see some confluence with the breakout down from
the closing range.
If there is an upside
breakout of the closing range, I must know the Fib extensions of the last major
leg down, which was from 88.47 on Monday to 87.11 on Tuesday. These are the 1.27
at 88.84 and the 1.414 at 89.03, both of which bracket the closing range
breakout measurement. The 1.618 Fib extension is 89.31, and the 2.0 is 89.83.
You would then do the 2.24 and 2.618 if it came into play. The Fib extensions
also come into play with the daily chart EMAs, which are the 8-day EMA at 88.88,
the 20-day EMA at 89.83, and the 50-day EMA at 90.
Next, I look for the most
significant high or low over the past few days, and that is the 90.61 Dec. 26
high and Tuesday’s 87.11 low. I frame that, and we get a .236 retracement at
87.94, which coincides with the 87.93 .38 retracement from 88.43 to 87.11, and
thus, that is your triple-bottom action. The .38 retracement from the 90.61 high
and 87.11 low is 88.44, which is the triple-top closing range boundary on
Tuesday. Next you have the .50 retracement at 88.86 in confluence with the 1.27
Fib extension and 8-day EMA of 88.88, in addition to the range breakout
measurement which is to about 88.93. The .618 retracement is 89.27 vs. the 1.618
Fib extension at 89.31. The 2.0 is 89.83, right at the 20-day EMA which is also
89.83. This gives me a framework to work from regardless of which direction the
SPX takes starting the new year.
In case they rally during
early January, you should frame the retracement levels from the 87.11 low, if it
holds, to the 96.05 rally high. By doing this, you are prepared for the 1,2,3
top levels. Having done all of this, you are free to react very quickly to any
situation or level, depending on how the SPY reacts as it trades into the
levels. I put this in chart form on my desk and then just focus on what level
and when the entry patterns set up, long or short.Â
Have a good trading day,
and I hope you have a wonderful year.
Five-minute chart of
Tuesday’s SPX with 8-, 20-,
60- and 260-period
EMAs
Five-minute chart of
Tuesday’s NYSE TICKS