In my previous post, here,I discussed how Trade or Fade forcast today’s stock move, and gave you explicit entry and exit points. However, you didn’t need to be a Trade or Fade subscriber tosee the rally coming.
Stocks had a huge rally today. While Swing Trader’s Insight didn’t forecast a rally of this size, I did have a bullish bias today, and recent chart activity is illustrative of how to read the charts.
Last Thursday (the circled bar) was a sell short day, as momentum (bottom panel of the chart) reached a peak.. Friday did show a selloff in stocks, but S&Ps held at Tuesday’s low. Friday’s selloff led to a momentum buy signal (the arrow points to the momentum low-lowest level for over two weeks). Although there wasn’t one in the S&P, Friday saw breakout setups for the NASDAQ and Dow futures, and they saw selloffs Friday. I point that out because it has been my observation that breakout moves often reverse themselves the following day, so it was likely that Friday’s breakout selloff would lead to a rally today.
There were a number of place to look to get long in the S&Ps today. The STI rules would have your first buy price to be at Friday’s low. As that occurred in the middle of the night, you most likely would be looking for other entry points. Daytraders could use intraday structure to find points to buy, with a long side bias. A possible entry price would have been Thursday’s high-the recent swing high-as a long entry price.
What’s next?With momentum now at its highest level for months, the bulls should be cautious tomorrow, and countertrend traders could look at short sales tomorrow. If the trend is to stay strong, a correction may be sideways rather than down, in order to ease the overbought condition.
With study, momentum can be a valuable tool for the swing trader.
Momentum has been a useful indicator
For more information on momentum in futures swing trading, take a look at Swing Trader’s Insight here.
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