My recent bias has been short term bearish, intermediate term bullish. Short term, the character of the market seems to be changing. Price made a strong reversal on Friday on decent volume. More importantly, price pierced through the 200 day moving average. This is bullish.
The negative volume pattern is slowly losing steam. While not quite bullish, recent volume puts the distribution pattern in question.
On the chart below, notice that from the start of 2009 to now a “cup and handle formation” has emerged. This bullish pattern often sets up a continuation pattern off bottoms.
RSI has changed in character. It recently made highs and now steadily resides in the to half of the range.
As we can see, things are looking quite bullish. So does that mean it’s time to go “all-in”? No, it’s not.
There still are some concerns. The 2009 high is two points away. This could provide resistance. Also, in a perfect world, volume would have picked up more than it has during the latter half of the bottom formation.
A long trade still can be made, but I am still not going with a big position size. Risk should be managed closely in case of pattern failure, which is a distinct possibility.
Three SPY Trades
1. Wait for pullback to bottom of range ($88–89). Place stop below 50 day ma ($86). Targets at $95 and $100 (see longer term chart).
2. Enter now, above the 200 day ma ($92). Place stop under Friday’s price bar ($90). Targets $95 and $100.
3. Enter now, with stop under 50 day moving average. To justify risk, target must be $100. This is a longer term trade.
This was on excerpt from the Monday’s Trade Report. Subscribe to receive the report 4-6 times per week, featuring my nightly journal, market outlook, focus list and trades.