October 10th
I typically use the weekend to look at the longer-term charts such as the weekly and monthly timeframes. I start with SPX. Below is the weekly chart. I sometimes get the question of why I look at such a close-up view of a chart. It’s because the details of the price action is where the clues are found. Last week’s candle was 2d which is a downtrend candle (lower high, lower low than the prior candle). That’s 1 point for the bears. Price is below the lower band of the 8-week SMA and, more importantly, the bands are down sloping so that’s another point for the bears. Last week’s high was rejected very near to last month’s HB (50% retracement level). That’s typical of a downtrend. Another point for the bears! Anything bullish happen last week? Well, price did drop below last month’s low and reverse to close far above that low. That’s a failed breakdown below an important level so that’s bullish. Price closed the week above this past week’s HB so that’s also bullish. So how do I trade this coming week if both bulls and bears scored points?
First, understand that I don’t just trade using the weekly chart. I trade the daily and 60-minute charts also where the important levels and trade setups are much tighter and trades are more frequent. The weekly chart offers a longer-term perspective. On all timeframes I trade using prior period pivots as reference points. On the weekly chart below I’ve identified the HB zone of last week’s candle. That zone includes the 50%-61.8% retracement of the prior period. If the SPX bulls are in control next week they will keep price from falling below 4336. That’s important support. If they can’t find enough buyer’s to support price there then the bulls are weak and I’d expect the next price move following that failure to target last month’s 4306 low. Then last week’s 4279 low becomes the next important level. Would I expect that support to hold? Not necessarily because if price drops back below last month’s low *again* that would negate the bullish failed breakdown of last month’s low which happened last week. That would be an important indication that the bulls are not strong! That would keep me holding a bearish bias next week.
If I’m using ‘price below a certain level is bearish‘ filter in establishing my price bias for next week then I must also say that a failure of price to follow-thru lower is bullish. So many traders lock-in a bias and refuse to react to a failure of their thesis. That’s where some of the greatest trading opportunities exist! Failed moves are often the real money-makers! Last week, when price dropped below last month’s low, it was bearish. When price failed to follow-thru lower and then moved back above last month’s low SPX rallied over 100 points! It would have been a huge missed opportunity to have not turned bullish there (with a stop below last week’s low) but can you imagine how painful that move was to traders who remained short? 😬
Below is the SPX daily chart showing those tighter setups I mentioned above. Friday’s candle was a “1” which is the label for an inside day. Trading that setup involves going long on a breakout above the high (blue #1) or short on a breakdown below the low (red #1) of the inside candle. I’ve also marked two additional long trigger areas above Thursday’s high/last month’s HB and above the pivot high. The three additional short trigger areas are the bottom of last week’s HB zone, last month’s low and the pivot low. Keep reading as this is really important!!! As mentioned above, a failed breakout or breakdown is often a great time to take the opposite trade! As I look at the bullish and bearish trigger levels below I’m really interested in watching for the failure of those levels! For instance, look at last month’s HB (blue #2). That’s a bullish trigger however if SPX moves above that level, reverses, and then falls back below it I would be happy to short it with a stop above whatever the higher was prior to the failure. So even though that’s a bullish trigger level it can also be used as a bearish trigger level on a failed move. See how that works? All important levels are both bullish and bearish triggers depending on whether the moves fails or follows-thru. From personal experience I can tell you that I’ve made much more money trading failed moves than I have by trading continuation moves. Embrace the failure!
