Hey traders,
I figured I'd share my ideas for swinging and day trading the SP500 over the next several days / weeks. I'm using the continues SP500 futures chart but this analysis should work on SPX and SPY as well with few (if any) differences.
I'm going to do my best to make this post valuable even when this market structure is rendered broken by price action. My goal is to make this educational and hope to help people learn how to think their way through a trade, from planning to execution.
MARKET STRUCTURE (Daily Chart)
The market has been trapped beneath 4327 for quite some time and have, thus far, respected a high and a low of the range. Recent consolidation in the range during the last leg down has formed a small supply zone which could prevent prices from revising the high in the current structure.
On the bullish side of the coin, a demand zone dating back to the front side of the trend has been propping up prices. Over the last several days this demand zone has been successful in holding up the current price action, forming a reliable support in which to day trade from.
PRICE CAN ONLY DO ONE OF TWO THINGS
No need to overcomplicate the analysis at this stage. We just need to recognize that it can only do one of two things. I can respect support and move up or it can violate it and move down.
So far we have seen consolidation on support and no real burst of aggression from buyers, making one wonder if there are enough buyers to hold off the sellers at this level. It's important not to predict but one could make the argument that fighting for position at this level is worthwhile, whether bullish or bearish.
My thoughts are that, based on this chart and information, it is too early to execute a trade and pick a side. I'm rather conservative in these scenarios and would prefer to see additional confirmation of a side beginning to dominate the other.
IDENTIFYING THE OPPORTUNITY ZONES
A couple of parallel channels set to the recent highs and lows of this consolidation makes for an easy way to identify zones of opportunity and further develop trading plans.
I say "plans" because I am planning for both bearish and bullish movements for a swing trade as well as interactions with these levels for day trading opportunities. It is prudent to react to what the market is doing rather than trying to impose our individual will upon it. If it goes up, we trade up. If it goes down, we trade down. No reason to overcomplicate things.
At this stage we are simply looking for price to show us a sign of some form between the pair of orange lines at the top or bottom with no real preference. In lower time frames this could be useful for day trading and overnight trading setups. We are also looking for price to make it's move to the top or bottom side of the extremes, preferably with rising volume, spiking ATR, or a retest of that support or resistance level without breaking it.
HUNTING FOR A TRIGGER
These are some examples of potential setups and triggers on the hourly chart. Of course this is not an exhaustive list of possibilities but just an idea of some things we might see again at these extremes if the market were to continue to bounce around in this range.
Our plan, should the market stay inside of this range, is simply buy low, sell high or short high and cover low.
IT WILL BREAK OUT....
Eventually. When it does we should be looking at our volume, oscillators, ATR, or whatever your favorite flavor of confirmation is. Personally, I watch the ATR, RSI, and price action. I want to see a retest of old resistance become support or old support become resistance. When that happens, I look for my entry, trigger, and targets.
DIRECTIONAL BIAS - STICK A FORK IN IT
Now I'm ready to pick a side to lean toward. Team Bulls or Team Bears?
In my opinion there is no finer tool in all of technical analysis for establishing directional bias and studying the geometry of the market than the Andrews Pitchfork.
In the above picture we can see that the market has very clearly respected the top and center of the pitchfork. Based upon that, I would expect the market to continue to respect these levels until proven otherwise.
BEARISH TRADE PLAN
Our two parallel channels from the daily chart conveniently bracket the low of a recent swing in the market and intersect with the upper boundary of the pitchfork. If the market is kind to me, I'll get a nice trigger or bearish pattern at or near this area. From there, trade management would be relatively simple. Target the recent low and potentially beyond or exit the trade should the market fail to hold a down trending structure. My first price target would be the recent lows and the second price target would be the centerline of the pitchfork.
My thesis of a bearish move in the market is due to several factors:
1) There is a prevailing down trend prior to this range forming.
2) The market has shown weakness when approaching the upper extreme
3) The economic data continues to be unimpressive and talk of recession is rising
4) The geometry of the pitchfork has been respected and it is pointing down
5) Recent surging volume led to increasing prices, but prices have failed to break higher with any significant follow-through.
In my opinion this shows weakness in the market.
BULLISH TRADE PLAN
Sometimes we just do not get the market or analysis right. Sometimes we do everything right and the market does what it wants anyway. It's important to understand that our analysis does not control the markets and therefore we need a backup plan.
I see two possible scenarios based upon the data we have on this chart.
1) Prices pullback to the bullish opportunity zone and respect / confirm support and proceed upward
2) Prices move up from current levels and break out of this geometry of the market, push through the center of our parallel channels, and test the upper extreme.
In either scenario I would need a very clear trigger and indication of buying pressure. I personally feel as though this would be counter to the dominant trend and has a bit lower probability of success than our bearish theory. We can, however, make money on a bullish move and should be prepared to do so if the market dictates that prices should move up from here.
Surging volume on support recently gives indication that there could be strong buying pressure at the recent lows and that sellers might not have the power to push through the area. Joining these buyers could lead to entry early in a trend reversal, if even in the short or intermediate term.
CONCLUSION
Hopefully you enjoyed this read and my take on the current SP500 chart. I also hope that you find value in this post.
Please remember that this is not financial or trading advice but rather an attempt at sharing my thought process with the community.
Good luck with your trading!
I figured I'd share my ideas for swinging and day trading the SP500 over the next several days / weeks. I'm using the continues SP500 futures chart but this analysis should work on SPX and SPY as well with few (if any) differences.
I'm going to do my best to make this post valuable even when this market structure is rendered broken by price action. My goal is to make this educational and hope to help people learn how to think their way through a trade, from planning to execution.
MARKET STRUCTURE (Daily Chart)
The market has been trapped beneath 4327 for quite some time and have, thus far, respected a high and a low of the range. Recent consolidation in the range during the last leg down has formed a small supply zone which could prevent prices from revising the high in the current structure.
On the bullish side of the coin, a demand zone dating back to the front side of the trend has been propping up prices. Over the last several days this demand zone has been successful in holding up the current price action, forming a reliable support in which to day trade from.
PRICE CAN ONLY DO ONE OF TWO THINGS
No need to overcomplicate the analysis at this stage. We just need to recognize that it can only do one of two things. I can respect support and move up or it can violate it and move down.
So far we have seen consolidation on support and no real burst of aggression from buyers, making one wonder if there are enough buyers to hold off the sellers at this level. It's important not to predict but one could make the argument that fighting for position at this level is worthwhile, whether bullish or bearish.
My thoughts are that, based on this chart and information, it is too early to execute a trade and pick a side. I'm rather conservative in these scenarios and would prefer to see additional confirmation of a side beginning to dominate the other.
IDENTIFYING THE OPPORTUNITY ZONES
A couple of parallel channels set to the recent highs and lows of this consolidation makes for an easy way to identify zones of opportunity and further develop trading plans.
I say "plans" because I am planning for both bearish and bullish movements for a swing trade as well as interactions with these levels for day trading opportunities. It is prudent to react to what the market is doing rather than trying to impose our individual will upon it. If it goes up, we trade up. If it goes down, we trade down. No reason to overcomplicate things.
At this stage we are simply looking for price to show us a sign of some form between the pair of orange lines at the top or bottom with no real preference. In lower time frames this could be useful for day trading and overnight trading setups. We are also looking for price to make it's move to the top or bottom side of the extremes, preferably with rising volume, spiking ATR, or a retest of that support or resistance level without breaking it.
HUNTING FOR A TRIGGER
These are some examples of potential setups and triggers on the hourly chart. Of course this is not an exhaustive list of possibilities but just an idea of some things we might see again at these extremes if the market were to continue to bounce around in this range.
Our plan, should the market stay inside of this range, is simply buy low, sell high or short high and cover low.
IT WILL BREAK OUT....
Eventually. When it does we should be looking at our volume, oscillators, ATR, or whatever your favorite flavor of confirmation is. Personally, I watch the ATR, RSI, and price action. I want to see a retest of old resistance become support or old support become resistance. When that happens, I look for my entry, trigger, and targets.
DIRECTIONAL BIAS - STICK A FORK IN IT
Now I'm ready to pick a side to lean toward. Team Bulls or Team Bears?
In my opinion there is no finer tool in all of technical analysis for establishing directional bias and studying the geometry of the market than the Andrews Pitchfork.
In the above picture we can see that the market has very clearly respected the top and center of the pitchfork. Based upon that, I would expect the market to continue to respect these levels until proven otherwise.
BEARISH TRADE PLAN
Our two parallel channels from the daily chart conveniently bracket the low of a recent swing in the market and intersect with the upper boundary of the pitchfork. If the market is kind to me, I'll get a nice trigger or bearish pattern at or near this area. From there, trade management would be relatively simple. Target the recent low and potentially beyond or exit the trade should the market fail to hold a down trending structure. My first price target would be the recent lows and the second price target would be the centerline of the pitchfork.
My thesis of a bearish move in the market is due to several factors:
1) There is a prevailing down trend prior to this range forming.
2) The market has shown weakness when approaching the upper extreme
3) The economic data continues to be unimpressive and talk of recession is rising
4) The geometry of the pitchfork has been respected and it is pointing down
5) Recent surging volume led to increasing prices, but prices have failed to break higher with any significant follow-through.
In my opinion this shows weakness in the market.
BULLISH TRADE PLAN
Sometimes we just do not get the market or analysis right. Sometimes we do everything right and the market does what it wants anyway. It's important to understand that our analysis does not control the markets and therefore we need a backup plan.
I see two possible scenarios based upon the data we have on this chart.
1) Prices pullback to the bullish opportunity zone and respect / confirm support and proceed upward
2) Prices move up from current levels and break out of this geometry of the market, push through the center of our parallel channels, and test the upper extreme.
In either scenario I would need a very clear trigger and indication of buying pressure. I personally feel as though this would be counter to the dominant trend and has a bit lower probability of success than our bearish theory. We can, however, make money on a bullish move and should be prepared to do so if the market dictates that prices should move up from here.
Surging volume on support recently gives indication that there could be strong buying pressure at the recent lows and that sellers might not have the power to push through the area. Joining these buyers could lead to entry early in a trend reversal, if even in the short or intermediate term.
CONCLUSION
Hopefully you enjoyed this read and my take on the current SP500 chart. I also hope that you find value in this post.
Please remember that this is not financial or trading advice but rather an attempt at sharing my thought process with the community.
Good luck with your trading!