I was scanning headlines somewhere, either in a Twitter feed or Finviz (a news and blog aggregator here) this morning. Someone had a story with a lead that said something like “With today’s higher open, let’s review what a Trend Day looks like”. I didn’t read the article, but it got me to look at the chart. (I define a Trend Day as a day that opens on one extreme and close on another. I wonder if the writer thought the rally was going to continue.)
Below is the daily chart for the December eMini S&P. As with the Euro I wrote about earlier (see here), today was a Buy day for the S&Ps. The signal was postponed for a day after Friday’s negative price action. On a Buy day we’re looking for some variation of a market opening near what turns out to be the low of the session, then rally, closing higher than the open.
Looking at the daily chart, that’s what you see-S&Ps opened on the lows and closed much higher than that. However, by the time I read that guy’s post, I was pretty sure the rally was already over, or at least I knew what it would take to rally farther.
Dashed line at the double top
How did I know this? The fact that they were unable to take out last week’s high at 1112.25. On the intraday chart below, you can see that by the time the stock market opened, S&Ps had already rallied to last week’s high. At this point, I wouldn’t buy unless they took out that high-otherwise it was likely that selling would set in.
That is what happened. The overnight rally ran out of steam; there wasn’t enough buying interest willing to pay higher prices. At this point, the market’s path of least resistance (and maximum pain) was to move lower, pressuring traders that bought overnight. At this point
Trend day down!
Sometimes things like support and resistance seem too obvious to still work, but using them can help you understand the market’s makeup, and help improve your knowledge of a market’s likely behavior.
This is a sample of the analysis from my Swing Trader’s Insight advisory service. For information on STI, and to sign up for a free two week trial, visit here.
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