S&P Analysis Week of 10/18/2020 - Show Me the Stimulus

I'm not super excited about this week's setups for several reasons. The main reason, however, is that we are moving sideways and we are in between two major support and resistance levels. Usually, it's my opinion that traders should avoid sideways markets and wait for clarity and a high probability setup.

I did try to point out some possible trades, but I think these could turn more into day trades rather than swing trades.

There isn't a lot of room to hold onto positions if markets continue the whiplash and sideways movement. Sometimes that happens and a trader has to sit out a week or two until a high probability setup occurs. You don't have to be in a trade everyday.

As usual, I keep my charts as simple as possible and focus on support and resistance areas (I ignore all the fancy indicators that can be confusing but also create false signals). This week it was a bit more difficult to make a simple chart because there is so much in play (including a broken major resistance that has not be retested). Also, the market may still want to test 3500 yet again because of the significance and because it was the last major breakdown area. This is the simplest and cleanest chart I could draw out.

Prior to this week, I was not putting any sell trades unless they were very extreme because we are technically still in an uptrend. However, I think at the end of last week the market started to show weakness. The market has a ton of over head resistance and coming into a bearish wedge, so I wanted to point out at least a couple sell signals.

I split trade setup #2 into 2 plays (A&B). 2A is a bit risky in my opinion because if it provides a signal (breakdown of diagonal support), then price might immediately come into support if the broken resistance is tested and confirms support. I still wanted to list it as a potential trade. The safer trade (2A) is if the broken resistance does not hold as support and we see further price declines. That would be the safer bet but keep in mind that there is strong support just below it. That is why all shorts are risky until we break the major support area.

The bullish trade comes if we bounce off the broken resistance or off the major support. I don't see any other long trades unless we break all time highs (which I don't think is likely this week).

I'm still 99% sure the broken resistance will be retested (and possibly this week).

So you can understand why I don't like this week's setups. I'm not even confident I'll take a trade until we get more clarity and confirmation and or start breaking major resistance/support areas. I've been hearing a consistent theme amongst the trading community that we will not see any big moves prior to the election. Who knows what the market makers are planning.

Good luck and be careful. If anyone sees better trade setups, please let me know. Otherwise please keep in mind that I am not 100% confident about this week. I'll post updates if this week starts to show better clarity.

Remember when trading:
"When it feels really wrong, it's probably right. And when it feels really right, it's probably wrong."

Comment:

Price came back down to the previous major breakout area (as I mentioned in my chart above).

This broken resistance was from 2 weeks ago but the market always like to come back to previous breakdown and breakout areas.

You can wait for the breakdown area to be retested and short it, or see if this broken resistance is support and buy off it. Keep in mind that there will be heavy resistance and you'll want to manage your stop losses accordingly (set them to break even and take some profit as you hit the heavy resistance). I'm not sure I would take this trade, but I'll see what the market provides.

There is definitely some strong support below. That would be a good place to go long if we bounce off it.

I'll post which trade I take if any. But it does look like this week is providing some signals.

Comment:

Trade setup 2A is active (short entry). Price retraced the breakdown area and is resuming down. First target is the last major breakout area where I will set my stop loss to break even and see if it breaks down further.

If price continues to breakdown, I anticipate strong support at 3400 (take profit).

Trade active:

Price gave a buy signal today. There was a bounce off the former broken resistance. I'm long at 3439 but I set my stop to break even since price came into heavy resistance about 15 points up.

I'm not thrilled about the trade because there is a lot of whiplash at the moment. I suspect I'll get stopped out at break even, which I'm comfortable with.

I'm not sure who is profiting from these sideways movements (maybe day traders and some swing traders).

If this gets stopped out, I'll wait for next week for the next setup. I'll post an updated chart.