Today, let’s take a look at the broader U.S. equity market. SPY is an ETF (exchange traded fund) that tracks the S&P500.
It is very fun to trade, moves well and now even has mini options. This gives you the opportunity to buy 10 shares at a time and still do covered calls while controlling shares in increments of 10. My thoughts on SPY and the market is we are about to have a small correction; nothing cataclysmic (at least, not yet).
CHART ANALYSIS
You may notice some support and resistance lines on my screen. The blue horizontal lines are locations of selling and buying pressure. $156.70 is a resistance line, from the previous all time high area on SPY back in 2007. When the SPY recently broke through that old resistance, it became new support in June 2013.
The first black arrow points to what I call a “quick retest” of the old resistance as new support. The Red arrow points to a stronger retest of old resistance, new support. You will often hear me refer to this as wave rotation. Well, recently $173.21 became an all time high. We have a quick retest (second black arrow) followed by a higher move. Does this look familiar to you at all? Now, late May of 2013, the SPY also created a small Bollinger Band double top. Same exact thing is happening right now. SPY has failed to reach the top of the Bollinger Band, creating a Bollinger double top. If SPY closes below $178.00, I could see the momentum bringing SPY back down for a nice wave rotation and potentially a bounce off of the $173 area.
QUICK PLAYS
If a trader were to make bearish trades, make sure they are quick as bearish entries would be counter trend. The long term trend of this market is still currently bullish. A bounce off of the $173 area would be a very high probability entry with great risk mitigation and longer term bullish potential.
This truthfully could happen before Christmas, still giving the market time to run up a tad before the end of 2014. Obviously the market could continue sideways for the next few days to a week as well, allowing the indicators to rest. If SPY closes above $182.00, let the bullish trend and nature of this market continue.
It’s all about planning your trade and trading your plan. In my opinion, this is a great one! Enjoy readers, and remember, as always, I’m here to help!
