Author: Chris Hood
The weekly chart on SPY suggests the market has yet to reach a bottom.
We’re definitely in a bear market.
What I find interesting is how most retail traders consider bullish, rising markets “good” and falling bearish markets “bad.”
These value-laden terms aren’t helpful.
Whether you win or lose when trading depends on how you’re positioned.
So if you’re long and the market drops, it’s moving against your trades. Not a great situation. However, if you’re short, a downtrend will make you money.
The reverse is also true.
Holding a long put or shorting shares in an uptrend isn’t a good idea. You’re going to bleed your account dry.
I remember reading a quote from author Werner Erhard many years ago:
“Ride the horse in the direction the direction it’s going.”
Honestly, I don’t even remember the original context of this quote. However, it has many applications in life and trading in particular.
It really doesn’t matter whether the market is going up or down.
Once you’ve identified the overall direction, then simply trade accordingly. It’s much easier to just go with the flow.
In an uptrending market, most of your trades should be bullish. However, if you’re skilled and brave, you can get some quick counter-trend wins…and there will always be a ticker here or there you can short.
But when the bias is to the upside, make sure your trading reflects that reality.
Likewise, the safest plays are always to the short side in a pronounced downtrend.
The key is being skilled enough at reading charts to understand where the market is headed. If you can do that, then half the battle is won.
With this in mind, let’s consider the direction of SPY right now.
Take a close look at the monthly chart. How is it moving?
It doesn’t take a market wizard to see that the trend is down – moving from the top left to the bottom right.
Remember that it usually takes 4-7 candles on a chart to reverse a trend. Unfortunately, the monthly chart prints a single candle every 20 trading days, so a lot of change is necessary before we have any hope of a reversal.
Moving to the weekly chart, we see mostly the same picture.
Since the beginning of 2022, SPY has been trending down, and it doesn’t look like it’s about to change any time soon.
Sure there has been a bit of sideways chop – but nothing on that chart is bullish.
As we enter the daily chart, we start to see more texture.
Short-lived rallies have wiped out many traders betting on a reversal. No index or stock moves in a straight line, and getting caught in these fake-outs can be devastating.
My working thesis is that we’ll see SPY hit 355 by August.
I could always be wrong, but there’s nothing in the charts to indicate otherwise. So before you start throwing away money just because we had a few green days, consider the longer-term picture.
Stay safe out there.