S&P 500
Hi guys, I'm supposed to update the SPY and XLF chart once a week but I was on a vacation with my family so I didn’t have time to update them, I do apologize for that.
Now, let’s see where I’m standing in the SPY chart from 2 weeks ago. There wasn’t a lot of change since the last daily chart, the breakout continues on the upside as expected and I'm still aiming for that shoulder top @ $134.69 with my risk at the main support/resistance level @ $127.38. With the presence of the “Golden Cross” (I will show it in the next chart), I’m pretty confident that my target will be reached and you may aim for the high @ $137.18 or even more. When the uptrend line crossovers the main support/resistance level @ $127.38, you can use the uptrend line to locate your stop if you wish to minimize risk.
Furthermore, above is the same daily chart without all the drawings are gone and I set the time frame to 5 years period. Here I want to show you the “Golden Cross,” which happens when the 50-period simple moving average (aka 50 SMA, grey line) crossovers the 200 SMA (green line) from underneath. It happened 2 times in last 5 years and 5 times in last 10 years. I’d say the golden cross is quite accurate because when it happened, 5 out of 5 times the SPY continued the move on the upside and hit a new high for that year. If the golden cross does happen in the near future, I expect the SPY to break the high of 2011 @ $137.18.
In the hourly chart, there isn’t much happening either. I keep the up sloping channel and the main support/resistance level @ $127.38 from last time. If you are swing trading, you should have gotten out some or at least 1/3 of your long position for profit when the bull trap happened, which the SPY hit a new 30-days high @ $133.4 and immediately retreated back inside the channel in the next bar. I also add a support level @ $130. I don’t have a better reason other than “it’s a whole number” to explain why I put my support level there, but I watched the price action on my platform when it came close to $130 this morning, I have a feeling that everyone sees this level as a good opportunity to get long, so I think $130 should serve a good support level here.
In the 15 minutes chart, I think you can see the price action I was talking about a little bit better. In the pre-market, many people were already selling the SPY down because of the gap down, which was largely due to the Greek debt issue. Upon market open, the first bar was a DOJI (price opens and closes at the same price for that price bar period; white bar) with a long tail on the down side, which means for that 15 minutes period people were selling it down but the market still had substantial buying interest to offset the bearish move
and pushing the price up to where it opened. Then, second bar opened up and did pretty much the same thing except there were more people selling than buying in this 15 minutes period. Noting that even the price was dropping, there were still quite amount of buying interested in the market holding it above $130, therefore I set it as a support level. As I said earlier, the support level @ $130 is largely based on my gut feeling, do take sometimes to think about it, you may find a different view about this.
Now that we have the support level in place, let’s see where the target is. Here I see 2 indications, an inverted head & shoulder bottom pattern and a gap. When I look at charts in short time frame like this one here, I usually look for the gap that has not filled yet. Whether it’s a gap up or down, I will mark the top and bottom of the gap as resistance and support respectively. When price reverts and breaks into the gap area, I use the closer gap level as risk and the farther one as target. Same as this one, the SPY gapped down in the pre-market and rose back into the gap area in the afternoon. Once it rose through the gap bottom @ $131.08, I would expect it to fill the gap by reaching the gap top @ $131.82 in a short period of time, which price will most likely hit the level by tomorrow. If it fails to fill the gap and falls below the gap bottom level, which means it’s a gap fade, price should retreat back to the low of the day @ $130.06 or the pre-market low @ $130.37.
In addition, I also spot an inverted head & shoulder bottom; if you read my previous post, you should know that I don’t trade the head & shoulder pattern, but here are some information for your reference. According to the book “Getting Started with Chart Pattern” by Thomas Bulkowsk, a head & shoulder bottom acts as a reversal indicator of the prior price trend 90% of the time. You can use the head of the pattern or any other underlying support to be the risk level. To find the target, you can use either the overhead resistance or add the vertical difference between the head and neckline to the highest point of the pattern, which the formula is:
130.96(B) – 130.06(A)+ 131.02(C) = Target @ $131.92
In this case, you should aim for the target @ $131.92 and cut loss @ $130. Please do make sure the risk & reward ratio is worthwhile before you take the trade; I always go for 1-to-2 or at least 1-to-1.5 ratio. You should never take a trade that has higher risk than reward just like you will not pay $10 to make $5, which is not a good deal.
I hope this post offers you some insight, thank you for reading and please feel free to give me some feedback. I'm going to update XLF in the next post and I should have it done by Wednesday, please check back in a few days.
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