SPY bounces off range support
SPY is going everywhere and nowhere at the same time. The ETF has moved on either side of 120 nine times in the last three weeks. Overall, the ETF has been stuck in a range bound by 122 on the top and 118 on the bottom (about a 3.33% range). The trend on the daily chart remains up. A trading range is a mere rest within this uptrend because we have yet to see a break down. A break below range support would argue for a deeper pullback towards the 115 area. Technically, a break above range resistance would signal yet another continuation higher. RSI is also testing support at 50, which has held since mid February.
There are a lot of potential patterns working on the 60-minute chart. First, we have a potential head-and-shoulders reversal with a downward sloping neckline. Second, the right half of the head-and-shoulders looks like a triangle consolidation. One could even interpret the head-and-shoulders as a diamond. In the indicator window, RSI is also consolidating with a triangle of its own. After a period of expanding momentum (Apr 12-26), we are now in the midst of contracting momentum. Watch for triangle breaks on the price chart and RSI to trigger the next signals. Be careful playing breaks though. The risk of whipsaw remains high as the employment report looms and the major indices are range bound.
Economic reports:
Tue - May 04 - 10:00AM - Factory Orders
Wed - May 05 - 8:15AM - ADP Employment
Wed - May 05 - 10:00AM - ISM Services
Wed - May 05 - 10:30AM - Crude Inventories
Thu - May 06 - 08:30AM - Initial Claims
Fri - May 07 - 08:30AM - Employment Report
Charts of Interest: CHK, DFS, DRYS, RIMM, SRE
This commentary and charts-of-interest are designed to stimulate thinking. This analysis is not a recommendation to buy, sell, hold or sell short any security (stock ETF or otherwise). We all need to think for ourselves when it comes to trading our own accounts. First, it is the only way to really learn. Second, we are the only ones responsible for our decisions. Think of these charts as food for further analysis. Before making a trade, it is important to have a plan. Plan the trade and trade the plan. Among other things, this includes setting a trigger level, a target area and a stop-loss level. It is also important to plan for three possible price movements: advance, decline or sideways. Have a plan for all three scenarios BEFORE making the trade. Consider possible holding times. And finally, look at overall market conditions and sector/industry performance.
