To avoid any possible confusion, that headline isn’t an April Fool’s joke. Last week I wrote about buying the dip in SPY (S&P 500 Depository Receipts), and in the days that followed, the pieces fell into place on the S&P 500 chart.
A GOOD STRATEGY
One of the best approaches for both novice and seasoned traders alike is to buy at demand zones and sell at supply zones (in the context of a rising trend). What we have right now is an opportunity to go long SPY while it’s still churning in a demand zone derived from the congestion spanning November to January. Meanwhile, there isn’t any overhead supply to be concerned with: above the recent ceiling of 1884, the S&P 500 would be at record highs.
Heightening the odds of the S&P 500 resolving its recent range higher is a particular momentum signal I look for when timing dip buying in an uptrend. I use fast and slow moving averages of the relative strength index to measure momentum. The fast average dipped slightly beneath the 50 midline twice in March and held its ground. This behavior tells us a temporary bout of profit taking has likely run its course is nearly over.
GETTING OUT
An exit strategy to consider is initially placing a stop loss beneath the March lows, then moving to a trailing stop based on a trend following technique such as a moving average crossover if the market indeed rallies.
Good trading, everyone.
