Daily SPY Recap (by Leaf_West)

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Dion 90 x 122 Well on top of having the worst day in the markets since last August, traders woke up to face the news of the biggest earthquake in Japanese history.  Throw on top of that some news about China’s inflation rate exceeding expectations, and new Portugal austerity measures (totally unrealistic) and it looked like it was going to be an emotional start to the trading day (read my pre-market blog). 

SPY_Mar11, 2011_Recap01

If you go back to my Recap from yesterday you will see that the 5-min chart had a triangle pattern and therefore, a push lower first thing made sense.  Again, unless you are thinking that the world is going to come to an end, you do not want to short the open of today’s market.  You may catch a small move lower but if you were bearish, the play is to wait for the first weak bounce to short.


On the other hand, if you were bullish, I suggest you wait to see that sellers were not going to overpower buyers first thing in the morning.  You do that by letting the market retest the LOD’s after the first real bounce.  Depending on the price action, that retest is your lower risk entry area compared to buying right at the open in a gap down scenario.


Your higher time frame reviews gave traders an edge here this morning as we knew that possible support was likely this morning from the daily 50EMA ($129.87) and the “line-in-the-sand” level of $129.70.  If price could get above these levels, it would be a positive sign for trading first thing.


I also showed the down trend line resistance on the pre-market chart which to me was a pivotal test for the market if we were to be looking at playing to the long side today.  As well, Ninja level 9 traders know that the 50EMA is the “line in the sand” for reversal trades, so we needed to see that level taken out to get us to play long for more than a quick scalp.


Let’s do this …




Trade #1 – Getting Long After a Successful Retest of the LOD:

As I mentioned in the preamble, the lower risk, calculated entry this morning was not at the open but when price retested the opening LOD area.  The action right off the hop was informative though as it made the “push-through failure” that I have talked about in the past.  Again as a reminder, that is when after a strong period of selling (yesterday) you get price opening or pushing first thing thorough the LOD from yesterday, thereby making a new lower low.  Price needs to quickly reject those levels and thrust back above the LOD from yesterday, thereby attracting new buyers who aren’t afraid of price continuing lower and causing shorts to get stopped out of their positions.


Aggressive traders often jump on this break of the previous LOD.  I prefer to wait for a retest (momma’s boy).  The big thing that this push-through failure should have done is to flag to you the strong possibility that today was going to be an up day.  If buyers are able to push the market higher right out of the gates, then odds are greatly improved that they were going to control the action for the day.


Price moved into the down trend line that I drew pre-market and pulled-back.  That was also right at the 50EMA … to me that really showed me that moves to the upside today were only going to happen when the trend line and the 50EMA were overcome.


I made a decision early this morning that I was going to be disciplined and wait for that trend line to break before I was going to even try a long scalp/trade. To me it is all about edge … I could see very quickly that if we could break the trend line then with the “oversold” condition of the market, there would be lots of upside potential for the market.  I wasn’t going to drive myself crazy playing the bounces before then.


You can see opening price action in the 1-min chart below.  Price tested that “Push-Through” level several times and there was no guarantee that it would hold … the tests starting around that 10:30am eastern time started to give a hint that price was going to respect that level.  Shortly after that, price broke the trend line for the first real time.  Next thing to wait for is a retest of the LOD/break of the line level.  We got that and were off to the races.


   SPY_Mar11, 2011_Recap02


So we were triggered long on the break of the $129.94 level (happened to also be yesterday’s closing price – lime green line).  Our stop was $0.15 and the first resistance was the 50EMA at $130.13.  If we could get above that level then the previous swing high was within reach ($130.64).  I jokingly blogged about this set-up with my “SPY … Another F*cking Triangle” post at 10:52am eastern.


Price moved up through the 50EMA, made a little bull-flag pull-back and then moved in an “impulse” move right into our price target of $130.64 right at that 12pm eastern trend stopper time zone.  That was good for me and I took profits … I blogged telling people to expect a pull-back/consolidation range pattern and then another leg higher.  I mentioned to expect the renewal of the trend move after 1pm eastern.  I find that the resumption to these trends typically start in that 1:15pm – 2:00pm time zone.  Knowing that gives traders an edge, and today it had us prepared to get long on the break of the down trend line for trade #2.



Trade #2 – Getting Long on a Pull-Back of an Impulse Trend:

These pull-backs from impulse moves come in all different types of shapes and sizes … I find that you can eliminate a lot of stress by just drawing trend lines and playing the break.  That happened at about 2:05pm eastern at about $130.50.  A stop of $0.15 was fine here and your target was now the 200SMA/$131.00 level.


I blogged about the overhead resistance that price was bound to encounter at that $131.00 level … I stated that if price was able to get above that area, then shorts would start getting stopped-out and price could really get in gear.  The alternative was that bears were not going to let price get above there and the SPY would get slapped down.


Price moved into the 200SMA just below the $131.00 level and then at 3pm eastern pushed through the 200SMA and the $131.00 level … hopefully traders noted that TICKs pushed higher on this move but failed to make a new “kick-off” HOD.  This was your first clue to not expect a crazy move higher into the close.


Price pulled back to the $131.00 break-out price and then bounced higher … price took out the HOD from yesterday (blue dash line) at $131.18 at 3:20pm eastern, made a double top at 3:31pm eastern on lower momentum and then crazy-time kicked in …. The last ½ hour is really a time when large institutional/hedge funds “balance” their positions and can therefore wreak havoc on smaller traders’ positions.  I like to be out by 3:30pm unless I have a “kick-off” signal going into this time period.  If I see a kick-off signal, then large accounts are actually tipping their hand that they are going to add to the upside volatility in the last ½ hour and I will therefore tag along for some free money.


That was it for a pretty simple day … wait for your triggers/signals and execute.


Higher Time Frames

SPY – 30 Minute Chart

  SPY_Mar11, 2011_Recap03_15min

We clearly broke the Triangle Pattern yesterday and I am looking that the 200SMA level as the maximum possible target for any further upside on Monday.  If we get there and the market’s internals are weak that will be “Momma’s Boy time” to back the truck-up on a short position.


The $130.00 level looks like a possible area for support if there is weakness at the open on Monday.  Remember $130.40 is the equivalent to 1300 on the S&P500 cash index … that may offer support as well.



SPY – Daily Chart

  SPY_Mar11, 2011_Recap03_Daily



Some people are pointing to the action today and stating “we should be buying the dip, just like always!!”.  That may indeed be the case again here, but my thinking is that this time it is different.  A lot of the technical charts that I showed in yesterday’s Recap highlighted how much weaker the market is during this “correction” versus the November 2010 one.  You can see that as well in the chart above.  Note how the candles in November were smaller and tighter while the ones during the current pattern are much larger.  Also, momentum hugged the zero line back in November, while it regenerated strength to break higher.  The same can’t be said about the current action.


Cheers … Leaf_West


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