The S&P 500 (SPX) daily has shaped up nicely to show an attractive long entry point. I know some of you may be feeling uncomfortable with stocks at current heights, but there aren’t any warning signs technically. If you something to help you sleep at night, draw a line in the sand and stay long unless it’s breached, and rest easy. I’ll show you what I mean.
Volume Clues
Before that, let’s start with the price structure. SPX began consolidating at the start of the month. Often, volume recedes throughout a consolidation. This case was a little different. Volume surged on Tuesday and Wednesday of last week as the index was essentially treading water. Volume was also high when the market sold off sharply on Thursday. This raised a big warning flag: heavier volume amid stable price action followed by a high-volume decline often precedes a larger downturn.
Market Action
But SPX rallied on Friday – recovering nearly all of the ground lost on Thursday – and recovered from intraday price weakness yesterday. This provides evidence that the Thursday sell-off likely acted as a shakeout – a bout of selling that pushes weak hands out of the market and affirms the buyers’ control. The shakeout presents you with an excellent opportunity as you’re still able to buy while the market is consolidating, before it runs away from you.
Key Levels
Now to that line in the sand. The lows on 7/10 and last Thursday were around 1955-1953. You can place a stop loss a per cent or two beneath that (or whatever the equivalent is in SPY – S&P 500 Depository Receipts). Regarding upside potential, there isn’t any overhead technical resistance to worry about with price near record highs. Consider a trailing stop such as a downturn in the 20-day simple moving average as an exit strategy.
Good trading, everyone.
