SPY Recap (by Leaf_West)

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Calgary_02 Back by special request I have just finished a SPY Recap for Friday April 1st … Its a little different (and longer) since I tried to incorporate into it some discussion from the Live Chat Room to better illustrate what traders actually do on these trade set-ups.

I hope you enjoy it … it is posted as a PDF under the Recap tab of my blog so people can get a printable copy there.  I know that there will be some haters out there complaining about the length but I actually have had some e-mails from readers of the SOH that liked the Recaps … so this post is for you.  Others who are less interested in a recap of intraday trading in the SPY can probably just fast forward to the end and look at my higher time frame charts of the SPY.

 

SPY_April1, 2011_Recap01

So the US Jobs report showed the US economy produced 200,000 jobs last month, just above the normal 150,000 or so of new entrants into the workforce each month … wow what awesome economic strength!!  Add on top of such positive news, the fact that Japan’s nuclear “accident” has only released 100,000 times more radiation than the US’s Three-Mile “accident” so far, and that oil prices have appeared to stabilize below $110 US a WTI barrel and you have the ingredients of a new bull market …

My pre-market blog highlighted the pre-market strength in the market as the SPY ETF showed that the market had broken the range contraction pattern from Thursday to the upside …

SPY_April1, 2011_PreMkt01

The pre-market action was showing some resistance at the expected $133.45 level, but I also posted a 60-minute chart as well so that people could see the $133.65 resistance area that I thought would be a more important key level for the markets to overcome …

SPY_April1, 2011_PreMkt02

There were some interesting trades today so … let’s do this!!

 

Trade #1 – Getting Long After a Gap Higher Pull-Back:

I have blogged in the past about how to trade large gaps (for a teaching piece on how to trade large gaps higher and Up Trend Days see my March 3rd SPY Recap/teaching piece).  I have found that opening gaps > $0.65 are statistically in the area where Up Trend Days are most likely to occur.  One of the parts of my March 3rd teaching piece deals with how to handle getting long, large up gaps.

The most risk adverse method is to wait for a pull-back … typically the best way to do that is pull up your Fibonacci retracement grids once the first high has been put in.  I also like to look for logical/obvious support areas such as support lines, the 20EMA etc.  Here is that retracement grid …

SPY_April1, 2011_Recap02

I love the 50% level for pull-backs …. On the free Live Chat Room feature now on my blog, I chatted …

9:57am … Maybe 133 area is a good area for a tight stop long on the SPY

There was economic news at 10am on Friday and I generally don’t like to trade in front of that news so I chatted …

9:59am … wait until after the news Matt

10:00am … going to go long SPY on break back above the pivot at 17c

So depending on the type of trader you are I have shown various alternatives for getting long on Trade #1 … aggressive traders can have limit orders placed ahead of time at the 50% retracement level at $133.02 or the obvious support level at $133.00.  For traders that are willing to do this, I suggest taking a smaller position so that you are able to hold if the trade continues against you.

Conservative traders normally would take the breaking of the 9:50am candle’s high at $133.14 … however, as I mentioned there was important economic news at 10am and when I looked at levels, I decided to wait for a break back above the pivot price at $133.17.  Those pivot prices are very often key/important intra-day levels that Algorithms have programed into their systems.

Stops depended on where people went long, but in all cases it should have been below the LOD by at least a couple of cents.  Targets were the HOD as I chatted at 10:03am.  Traders could have held as well for a second target that $133.65 major resistance area that I posted pre-market about.

I being a Momma’s boy took a quick scalp profit in front of the HOD (I have often explained why so I won’t rehash that point here).  If traders held through here a limit sell order at the 65c level would have been the smart trade.  I say that because for a price level that shows as much importance as this one does on the 60-min chart, it is bound to be a significant area of resistance.  Price will need to test that level before it will be able to possibly break through it.

In the Chat Room I walked people through my getting long the SPY again after it showed me that it was going to “accept” a move above that $133.45 level.  Here is some snippets of that discussion:

10:07am … now if it gets above the HOD I am going to wait for a pullback test … I want it to not have any 1-min closes below the HOD once it gets above.

10:14am … I think that the 45c resistance line is now support …

10:14am … going to try and find a spot to go long with a stop just below the support line

10:16am … going to hold off on going long here … wait to see if a push back can hold beneath the 45c level

10:17am … now if price can get above the 45c level quickly that shows me we go higher

10:18am … TICKs are remaining above zero … sellers not aggressive

10:18am … long again

10:19am … 50c … stop at 40c

10:20am … market wants to go higher … give the benefit of the doubt until proven otherwise

10:26am … took a little profit on the SPY (edit note … took profit at 63c just in front of 65c resistance level).

10:27am … going to wait to see how it does if it pulls back … 1min internals suggest a pullback possible.

10:27am … TICKs are making lower highs as well

 

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

Now Trade #2 is an obvious trade for those focused on the SPY … I wasn’t on Friday.  I was short ABX near the open and was dancing with that devil all day.  Sometimes focusing an excessive amount of your attention on one stock can be great and profitable and sometimes it won’t be.  Friday was the latter for me and ABX.

I did state at 10:40am in the Chat Room that the $133.45 level for the SPY should offer good support for the SPY and indeed it would.  Traders could have gone long on the break of the 10:45am candle’s high at $133.48, with a stop at below the $133.41 open price (also that 10:45am candle’s low).  Targets were the HOD $133.66 and then the $133.75 resistance line.

The reason I was willing to venture away from the SPY here and not focus on it in spite of a bullish tape was that $133.65 resistance area.  I commented in the Chat Room how I really wanted to see price get above that area and be “accepted” before I was going to focus on the SPY again (damn you ABX).

My thinking was that the SPY potentially had a significant lid on it at the 65c level so going long at the 45c area didn’t get me too excited.

11:28am … If the SPY can get back above the 65c mark here quick then we get a push … I can’t go long though as I see that 75c level being resistance … if we can get above that level then I will get long.  If we get above 65c and grind sideways for 15-30min then I get a little more interested

Back to Trade #2 … after getting long, traders involved here had no reason to sell before getting into that $133.75 resistance area.  There were some weakening internals on the SPY however as we entered this resistance area … one member of the Chat Room (props to Matt!!) mentioned how the SPY made a new HOD without making a new high in the TICKs.  That is classic non-confirmation … what people should do is make sure they are focused on trend line support once internal weakness is apparent.  Some traders think you should sell or even try going short but I think that is wrong.  Divergences are warning signals only … you will lose money if you sell here or try and short more times than not!!

I posted the chart on the following page in the Chat Room at 11:41am and commented …

11:42am … 3-Push Pattern on 5min SPY chart … watch for the break of trend line … then Matt can get horney for a short

11:43am … got the break there … I still think that it pulls back to only the 45c level.  Then another push higher before I would be convinced to try a short.

11:44am … NEVER try to pick the top on a trending market … wait for a line break and then a retest.  That is PROOF that the market has put in a top.  Until then it is like a teenager groping in the dark on his first date.  Sometimes you like what you find … sometimes you don’t.

SPY_April1, 2011_TradingDay01

A break of the Trend Line was your exit signal for most traders … aggressive traders often will hold for the retest to make sure price isn’t just making another pull-back in the upward trend.  The 12:05pm candle pushed back and reversed at the $133.75 level not quite getting to the previous HOD at $133.77 … that is a signal that the market may not be ready to drive higher right now.

On top of this was the time of day … I have often commented that 12pm noon eastern is often a trend killer as the “big boys” in New York take their regular scheduled sushi break.  The breaking of the 12:05pm candle’s low at $133.67 was the proper spot for the last aggressive traders to let go of Trade #2 and if they were willing to get short in Trade #3 …

 

Trade #3 – Getting Short at Failed Retest of HOD:

Trading is often effected by biases …. this fact can either help you or hurt you in any given instance.  In general, biases are something that we as professional traders should try and keep out of our day’s work.  I must confess that I am not able to do that consistently.  The Trade #3 set-up was a perfect example of that.

My biases the past several days was to buy weakness (example of bias helping me make $) … as that was the case, at the lunch hour on Friday I was not convinced getting short was a great risk/reward trade.  As such, I passed on a text-book short set-up trade here with Trade #3.  My thinking was that we would possibly just grind sideways/slightly lower over the lunch hour before resuming the pre-lunch hour trend after that traditional 1:15pm/1:30pm “restart” time period.  I looked at the 20EMA, that $133.65 major support area (formerly resistance) and at most the possible 50EMA at the $133.45 area as the maximum downside exposure.  That didn’t excite me … besides that ABX slippery pig was diverting my attention.

For those of you that did short the failed retest of the HOD, the trade just chugged along not giving you any trigger to exit really until the $133.45 area at around 1:15pm.  The 1:15pm candle was a doji at obvious support (50EMA and the pre-drawn support line).  The 1:20pm candle was a bullish engulfing one and breaking of its high was proof enough at $133.50 to cover.  In the end, the short provided about 25c of profit potential assuming no slippage.  Again, I’ll take 25c trades all day but to me that wasn’t a guarantee here when we’re testing the HOD.

 

Trade #4 – Getting Short at Roll-Over of Lower High:

So when you get the end of a trend at that pivotal 12pm time zone, traders should be looking for a resumption of the dominate pre-lunch trend after that 1:15pm/1:30pm time zone.  That is typically what will happen.

Good traders will be hawking this resumption of the trend to determine how to position themselves for the move into the close … will price take out important price levels (i.e.,  HOD etc.) and push higher and higher into the close?  Will price gains stall and chop sideways in an uneventful afternoon?  Will buyers back away and give control of the tape to sellers?

Again my bias (damn things!!), was that price would resume the push higher … I also realized that the upcoming weekend would cause many buyers to shy away from taking too much risk (i.e., position size) into the close.  I didn’t give any thought to the SPY rolling-over here as we started to move higher.

Price moved off of support at $133.45 so it would have been understandable for aggressive traders to try a long here.  Here were my thoughts at this time …

1:35pm … SPY … until it gets above 60c I am not trying a long … I am willing to look long on a pullback to 46c area if internals are ok since 45c looks like a rock

Since the SPY never really did either of these, I was distracted on trades in ABX/FCX and OPEN.  It wasn’t until after price rolled over that I focused on the SPY.  Hopefully, traders trying the long on the SPY had either sold their positions on the break of the trend line support at around that $133.54 low of the bearish engulfing candle at 2:15pm.

2:40pm … I think there is a potential for a push lower since we made a lower high on the SPY

2:40pm … not going to trade it though (editor’s note … damn biases)

2:41pm … shouldn’t say that … a break of 41c triggers me a small short and then I will see what unfolds

2:41pm … so I am short a starter

2:41pm … 25c target

Let’s pause here and let me explain my thinking … like I said the SPY was making a roll-over which happens often enough that people should be willing to trade them.  These moves can waterfall lower so it is often a good idea to hold a small piece and not try to guess when it will end.  Traders should at a minimum hold until they get a 5-min candle signal … it is hard to do often (especially for Momma’s Boys with pre-set biases) but something we should all strive for.

I picked the 41c level as a trigger for me since the 45c level was still possibly support for a bounce/move higher.  A break of the 41c level showed that the 45c level couldn’t hold and also took out the 10:45am candle low (ALWAYS LOOK TO THE LEFT).  That price was also the opening price and a break below would take SPY negative and that is a magical threshold for many Algo’s.  All-in-all, that was the spot for me.

That break of the 41c level was indeed significant, as can be seen on the chart on the following page.  I can’t stress enough that when price breaks an important horizontal support/resistance line and TICKs make a new HOD or LOD, that is the Holy Grail and the “kick-off” signal that the fun has begun.

If you are prepared and unbiased (I wasn’t), you should be backing up the truck and taking this directional bet.  There is no such thing as a “sure thing” in investing but in my experience the TICK “kick-off” signal is as close as you can get.

I commented in the Chat Room that the time of day was ideal … 2:40pm was far enough from the start of Crazy Time (3:30pm … last ½ hour of trading), that the SPY had time to really move lower.  My damn biases though for giving the POMO/Fed too much credit made me keep my size small here and to take my profit too early.

SPY_April1, 2011_Recap03

 

So where should non-Momma’s Boys cover their shorts?  Well, if you can fight the urge to protect your profits, the 5min candles never took out the high of the previous candle until the 3:20pm candle.  That was right at the HOD from Thursday so it made sense to cover … also Crazy Time was about to start so it all made perfect sense to take your profits.

If you were willing to trade into Crazy Time, then there was one final trade to make …

 

Trade #5 – Playing an Oversold Bounce on a Bullish Tape into the Close:

This is an interesting trade to analyze … we really beat it to death in real time in the Chat Room as to when to buy the SPY for a bounce.  A Chat Room member e-mailed me after to talk about some of the confusion that he had in trying to get long here.  With that as a back drop, I will try to discuss the shoulda, woulda, coulda’s of this trade.

As mentioned, my biases for POMO/Fed rescues have made me some good coin the past several days but here it limited my profits on the short.  It also made me very confident that we would get a bounce into the close so I was NOT GOING TO MISS THIS TRADE.

The trick in getting a profitable trade here is to not get in too early or too big right away so that you don’t get forced out emotionally if the trade north doesn’t happen right where you hope it will.

The first thing traders should do is look for obvious support levels … that is where Algo’s will offer the first lines of defense and therefore a good spot to see if the market will bounce.

The first signs of support by the market was the 2:47pm -3:00pm time when price was testing the pivot price of $133.17.  This was also the time that my buddy Matt was trying to get long … he saw higher lows in the TICK and took that divergence as the signal/trigger to get long.

I want to stop and talk about that … firstly, Matt is incorrect I believe in looking at TICK the way he was.  The way I treat new LOD’s in the TICK is as follows (the same is true in reverse for new TICK HOD’s):

  • When you have a new LOD in TICKs and you are not making new LOD in price … expect lower prices to come.
  • When you have a new LOD in TICKs and you are making a new LOD in price, this confirms the price action.  Do not try to play a reversal until you get at least TWO CONFIRMING SIGNALS THAT A REVERSAL HAS HAPPENED.

Matt was looking at the current swing move when comparing new lows in prices … that was his real mistake.  You have to understand Matt … he is a typical aggressive trader and wants to trigger himself into trades at the first signs of a possible trade set-up.  That is a higher risk/reward way of trading and not one that is really suited for everyone.  I do not trade that way but then again, I am an old Momma’s Boy.  I believe Matt is a young stud, trying to make his millions … more power to him.  If price had reversed here, then he would have made a great trade.  It wasn’t quite ready yet.

Let me repeat some of the chat during this time so you get a sense in real time what it was like for traders (aggressive and conservative types) to try and get long here into the close …

2:53pm (Matt) … waiting or need to see a higher low in tick with lower lows in price as a confirmation to get long if there is a long

2:54pm (Leaf) … Like now … did they flush that just to ramp it up to get really long into the close???

2:54pm (Matt) … I think so leaf as we hit the 50% fib drawn from intraday highs to low

2:54pm (Erik) … seems like its staying down here too long if that’s the case

2:55pm (Matt) … leaf new lows in price with higher lows in TICK IS A SIGNAL TO GET LONG???????????

2:56pm (Leaf) … I’ve got LOD at $133

2:56pm (Matt) … new lows IN PRICE WITH HIGHER LOWS IN TICK

2:56pm (Leaf) … Matt take a look at the 5-min candles … where is your signal … where is your trigger

2:57pm (Leaf) … $133.00 is LOD we are still above

2:57pm (Leaf) … $133.17 pivot is trying … seeing some divergences … I might punt a long SPY here soon

2:58pm (Leaf) … this 5-min doji’s high is 25c

2:59pm (Leaf) … back above 25c shows it wants to bounce

3:01pm (Leaf) … 133 and 133.05 (200SMA) on the 5min would make a nice little final flush

3:01pm (Matt) … leaf I’m talking about higher lows in tick and new lows in price from the selloff not low of day

3:03pm (Leaf) … new LOD in TICK

3:04pm (Leaf) … they are stepping on it … buyers couldn’t get it back above 25c … sellers punishing … maybe until 3:15pm or 3:30pm … I may trade long during the crazy time today

3:05pm (Leaf) … now I start to look long … we need the last miniflush for market makers to get positioned

3:07pm (Leaf) … safest spot is a break above 25c … I’m going to try and catch a starter down around 10c with a stop at 95c

3:08pm (Leaf) … look at 1min momentum … we had a higher low … a 2nd higher low makes a 3-Push complete

3:08pm (Leaf) … make a new LOD with no Low in TICKs is the sign I’m waiting for

3:09pm (Leaf) … Long at 9c

3:09pm (Leaf) … starter … will add on a new low as long as TICKs are ok

3:10pm (Leaf) … TICKs couldn’t push lower than -550ish

3:11pm (Leaf) … added a little more

3:13pm (leaf) … 3-Push on 1-min looks complete … 1-min is less reliable … need some positive TICKs

3:14pm (Leaf) … added a little more

3:15pm (Leaf) … little more … no new TICKs

3:15pm (Leaf) … just doubled with stop at 72c … 5k in SPY

3:16pm (Leaf) … fuck I’m going to be pissy all weekend if this doesn’t work

3:19pm (Leaf) … figured out 95c is breakeven … comeon

3:21pm (Leaf) … get back above that HOD from yest at 96c

3:21pm (Leaf) … raised stop to 76c

3:22pm (Leaf) … crazy time coming … I hope it works

3:22pm (Robert) … Leaf if you are even take some off

3:23pm (Leaf) … I’m ok …. $1k downside

3:23pm (Leaf) … ¼ off at $133.15 in front of pivot then we’ll see

3:25pm (Leaf) … TICKs holding up

3:26pm (Leaf) … two white candles now on the 5min … the third is the key … lots of bear flags are 3 candles

3:28pm (Leaf) … crazy time is starting …

3:32pm (Leaf) … took ½ off at 7c … hard stop at $133 on rest to lock in profitable trade

3:33pm (Leaf) … not an easy trade to buy that flush … kind of have to know what the algos are up to

3:34pm (Robert) … nice job for those who held

3:34pm (Leaf) … taking another 1k off at 15c if we get there

3:34pm (Tony) … I know, just when you told Leaf to sell at break even

3:35pm (Leaf) … I knew my downside … market looked done … not best time to sell

3:36pm (Leaf) … I’m out at 3:50pm no matter what

3:37pm (Leaf) … stopped

3:53pm (Leaf) … Just so you know …. on a big strong impulsive move down, that is a stupid trade to try and catch. I was playing more on what I thought the market/Algos were doing.  That is also why I was happy to take a profit when I made one, even a small one compared to the risk

3:54pm (Leaf) … Normally the RIGHT trade is to short the bounce into an obvious resistance area like the 20EMA …. $133.20 was the spot.  Problem with text book trades on sell-offs is that the Fed has been busting those since last summer

As you can see I didn’t hold the trade quite long enough to get the most out of it that I could have … however as traders, we all have to manage the risk while in a trade and I stick by my decisions and I am ok with how I traded that position.

That was it for a pretty simple day … the distractions of the day often make execution harder than it has to be but that is life.

 

Higher Time Frames

SPY – 15 Minute Chart

SPY_April1, 2011_Recap03_15min

Looks to me that the 15-minute trend line was clearly broken and the last push on Friday was a classic “kiss-of-death”.  The first MOB target for Monday is $132.12-$132.25.

 

SPY – 30 Minute Chart

SPY_April1, 2011_Recap03_30min

Let’s not get too excited about a correction … we are still well in a trend channel and while the RSI(14) indicator is showing some negative divergences, it is still staying above that pivotal 45-50 level that minor retracements usually stay above.

Notice how the lower support trend line is right near the blue 50ema on the 30min chart … $132.70.

 

SPY – Daily Chart

SPY_April1, 2011_Recap03_Daily

I still believe that we made an important top in February and all of the action since then is just a part of a correctional move.  We shall see … if it is a correctional flat, next week should be dominated with price moving down to the mid-March low area.

Cheers … Leaf_West

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