Author: Chris Hood
What an end to last week.
The bulls came out in force, and we saw a hard bounce off the 390.00-392.00 level on SPY.
Now my new near-term outlook is bullish. Throughout the chop, I knew at what levels I would change my ideas about direction.
The bullish level has been any close on daily above 407.00.
However, I always like to see a second close above the level for confirmation.
With the move to 410.00 predicted by the options chain in the presence of upward momentum predicted by my tools, this would indicate the bottom is in for now.
If you’re confused about how I could make such a radical change in my outlook in a week, listen closely.
No one knows where the market is headed for sure.
You must always be willing to disregard your bias on the market based on what the market is doing, not what you think it should do.
Many traders are permanent bulls or bears.
If your bias is bullish, you’ll see reversals and uptrends everywhere, even when your technical analysis disagrees.
Likewise, perma-bears always see the downside.
Neither view is helpful, especially when the market is chopping around, as we’ve seen recently. Strong biases just interfere with your analysis.
Look at the daily chart for SPY from Friday.
I’ve kept nearly all of my trades on short time frames because things can change quickly.
Putting huge positions on directional bets could win you money, but you could also get smashed on a reversal.
Certainty is not a luxury we can enjoy as traders.
When the market isn’t strongly trending, all we can do is take it day by day.
Though the bounce this week off the heavy green resistance zone bodes well for some continued upside, whether it is sustainable is yet to be seen.
Today begins another week.
Forget about your previous assumptions on the direction and analyze the market with a clear mind and fresh eyes.
Is it acting according to your prediction?
If so, then maintain your positions and take profits when you can.
However, if it changes, you have to be willing to cut any losses and switch sides.
Abandon the idea of identifying as a bull or a bear. The moment you do, your judgment is clouded.
Strive to be as wholly without bias as possible, being ready to change teams from one day to the next.
Is this the bottom?
The signs look good in the short run.
Could the market take another dive and fall through the support?
It’s the reason you have to keep your positions small and manage them actively.
Best of luck out there this week.