11/11/2022
Over the last several months, the vast majority of my trading has been in SPX or SPY.
(Don’t worry, I haven’t sworn off small caps and don’t plan on it.)
But one of the things that has become more apparent and beneficial is the recognition of entire multi-day trading patterns…
I’m talking about seeing the exact same flow of orders, both long and short.
Get enough of a feel for it and the trade becomes much easier…
The real work comes in the analysis and preparation of the trade with the risk being in testing whether or not you’re wrong.
And if you are, you want to be completely wrong so you can figure out why…
Today we’re going to do a deep dive into what I’ve been seeing in the SPDR S&P 500 ETF (SPY):
We’re on the 12-minute chart… I trade a combination of the 2 and 7-minute charts, but only after I’ve perused the 12 or 15-minute.
I get my levels from these.
I then watch for the game plan to play out…
I’ve talked about support and resistance ad nauseam, but let’s get into what this actually means because rarely does anyone go into the why behind it…
Support is more than a level that holds well and resistance isn’t just a tough place for the share price to get past.
Instead, both are areas types of liquidity, or price points of demand (support) or supply (resistance)…
…meaning there are orders ready to be filled in these ranges with specific prices — NOT at the market or even the inside market, necessarily.
These aren’t new concepts, but sometimes an explanation is all that’s needed for it to really click.
Now, in the midst of writing yesterday’s edition of Before the Bell, I’d had much of this written before 8:30 AM, but what happened at that moment was- well, you saw it…
If you didn’t, it was the best day in the market since April of 2020.
(Note the pre-market label.)
And the price action ripped through every level available, which is what we’re looking at today.
Considering the downtrend, each red dotted line is where — if you’re shorting — you’d look to cut bait if you hadn’t taken profits.
(The Alpha Waves tool we use in TRADECOMMAND would have kept you from holding the position too long.)
On a retracement, these levels are where pockets of buyers and sellers are sitting, depending on their bias, meaning an exchange is likely to happen that replaces traders who took a position here…
Off left to the center, you can see the spike that occurred, which is a sign that the trend could be nearing its end.
The second spike, right before Wednesday’s bloodbath, marked a second break higher before finishing with a higher low on Wednesday.
But redirect your eyes to the red lines once again…
Each one with a check mark has been tested, with any short positions likely taken off the books (again, liquidity)…
…except for the one red line marked with an X.
To truly run off each area and establish a clean break in the trend, there needed to be a bullish day that blasts through each of these levels.
And that’s exactly what happened yesterday…
Wednesday, although it created panic in many folks, was a weak move.
I circled where the price closed and, looking at the Fibonacci Retracement, it respected the 78.6% level.
And if you look on the lower chart, the volume didn’t come in until late… barely moving the price.
When everyone is screaming for blood… wait.
Keep moving,
(Disclosure: I hold multiple positions in SPY.)
This material is not an offering, recommendation, or a solicitation of an offer to buy or sell the securities mentioned or discussed, and is to be used for informational purposes only. Any performance results discussed herein represent past performance, not a guarantee of future performance, and are not indicative of any specific investment. Due to the timing of information presented, investment performance may be adjusted after the publication of this report. There can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this communication will be profitable, equal any corresponding indicated historical performance levels or be suitable for your portfolio.
