Wednesday, January 19, 2011

Short term SPY analysis

Had an email request for my view on SPY short term:

The only negative for the SPY is on the minute charts we have broken a valid trend line that was active since January 10th, and lost some short term moving averages, most notably the 5dma, but that is not uncommon. Volume was not unusual today. We bounced off of previous resistance ~127.90 which is now support.

We are still fine on the daily chart. Should we continue lower, there are plenty of downside targets available. If we are to start any sort of downtrend we need to either continue tomorrow and thereafter with increasing volume, likely accompanied by some sort of 'event', or the market will need to put in a series of lower highs and lower lows which will take many days/weeks to establish.

Right now this looks like nothing more than a simple pullback, and not any game changing event. In the short term we may have more downside, but likely we will find support and the market will enter a neutral range and bang about in that for a spell, which should allow swings and longer holds to continue working if you are positioned correctly. More downside is also an opportunity to look for relative strength in industries and individual names so when the market turns back up, you have a list of target entries and a better chance of being properly positioned for the next leg up.

If we establish a series of lower highs and lower lows on the daily over the next couple weeks, or put in a quick and violent downside continuation for the next few days then it will be time to focus on the short side for anything more than a quick scalp or day trade opportunity for the nimble. Very active traders, may of course already be trying to position for more downside, but those would smartly be test positions at best.


  1. Hey Rick,
    Thanks for taking the time to take a look at my blog, the insight, and the words of encouragement. Really appreciate it. I am getting some good info from Trading In the Zone, and hope to continue developing trading skills like yours. Really enjoy your contributions in the room. I'll catch you in there!

  2. Hey Eric,

    thanks for the compliment. Looking to create a new layout but not until the next time we get a day off the markets. wish the best of luck to the both of us =)

  3. Eric. Yeah, my favorite part of the book is the plan at the end for traders to determine whether they have a fear of trading, or whether it is their edge. It is invaluable.

    Jay, seems like you have had a good week, esp with the NVDA trade, and a couple other high vol names that escapes me right now. It inspires me to trade the mega-liquid tickers, which is not my strong suit.