Uptrend? Downtrend? It’s About The Move, People
The
numbers don’t indicate the excellent uptrend we caught yesterday
if you trade the S&P futures or the
(
SPY |
Quote |
Chart |
News |
PowerRating). Overall, the major indices were mixed, with the Dow
(
$INDU |
Quote |
Chart |
News |
PowerRating)
+0.4%, SPX
(
$SPX.X |
Quote |
Chart |
News |
PowerRating) +0.5%, while both the Nasdaq
(
$COMPQ |
Quote |
Chart |
News |
PowerRating), -0.7%,
and NDX
(
$NDX.X |
Quote |
Chart |
News |
PowerRating), -0.8%, were down. NYSE volume was 1.03 billion, a
volume ratio of 58 and breadth +414. Tech sectors were down, while the RLX,
+2.0%, and PPHs, +1.6%, finished green.
The SPY was in an 88.05 –
87.42 range from 2:00 p.m. ET on Friday until 11:00 a.m. yesterday. This range
would be broken sooner or later. The futures traders took it out the bottom,
running some stops, but the cash index hardly moved and there was a quick
reversal back into the range. This set up a good trade for sequence traders
familiar with RSTs. 87.36 was the 1.618 Fib extension of the last significant
leg up on the 60-minute chart, and the RST pattern gave you entry above the
signal bar’s high of 87.33 on the 11:20 a.m. bar.
The trade carried up to
an 88.47 intraday high, making higher highs and lows. If you are not familiar
with RSTs, then you also had a chance to take the 1,2,3 trend entry above 87.56
on the 11:55 a.m. bar, with your initial stop just below 87.38. There were two
more pullback entries on the way up, so it was certainly an opportunistic
trading day. The .50 retracement to the October lows was just below at 86.56.
The .618 is down at 84.32. The
(
DIA |
Quote |
Chart |
News |
PowerRating)s also gave you an RST entry from a
Dynamite Triangle with entry above 82.80 on the 11:25 a.m. bar, which ran to an
intraday high of 83.80.
The SPX took out the
reaction low of 872 yesterday before closing at 879. The
(
QQQ |
Quote |
Chart |
News |
PowerRating)s hit their
.50 retracement level of 24.27, while the
(
SMH |
Quote |
Chart |
News |
PowerRating)s churned around the .618
retracement level of 22.54, closing at 22.38. The Dow had an intraday low of
8253, with the .50 retracement just below at 8120, and the SPX at 861.
After a significant move
like the market has had since the October lows, you should expect a 50%
retracement and be ready for a .38 or .618 retracement. After breaking a
significant trendline, the major indices are retracing and in the process of
forming a 1,2,3 bottom until proven otherwise.
If you are tempted to
short in here, then be sure to know the retracement levels on the way down where
the trade can quickly reverse on you. I think both the SPX and Dow will hit
their .50 retracement levels to join the QQQs and SMHs which have already done
so. I wouldn’t short them right here because they can very easily trade higher
into the first four or five days of January. I don’t like, for example, shorting
the SPX at yesterday’s closing price of 879 with the .618 retracement level at
860 just 2.0% below. You can do that daytrading. Why risk position money?
That means, fellow
traders, I would look for a 1,2,3 lower top to set up if the indices rally into
early January before thinking of a possible short, or else play a long reversal
from the lower Fib retracement levels. I don’t care which comes first. The
market will decide that for me because I only want position trades that have a
positive mathematical expectation and good risk/reward. I could care less about
uptrend or downtrend. It’s about the move, people.
Have a good trading day,
and I hope you’ve all had a great year, and let’s all hope this is a much better
one for everyone.
Five-minute chart of
Monday’s SPX with 8-, 20-,
60- and 260-period
EMAs
Five-minute chart of
Monday’s NYSE TICKS