$SPX for the week 17 Apr 2017
The 50 MA has finally given way which should now see a test of the pivot low at 2322, a break there opens up a test at 2280/2300.
The short term levels to look out for: support at 2322, resistance at 2350.
2322 is the pivot low of the series of shorter term lower highs and lower lows, marked with “x” on the chart below.
2350 is the 50 MA and also the 20 MA which has been holding as resistance since ± beginning of this month, marked as the purple line on the chart below. You can see the consistent closes below this line for the past ±2 weeks with a few attempts to break above but they failed. See the wicks above the line, but failed to close above.
A few weeks ago I mentioned a tool that I use that was suggesting a short term top around 2380/2400, that has held. Using this same tool puts support at 2280 which coincides with the longer term support at 2280/2300 marked as the horizontal lines marked on the chart below.
Where does this leave me on my 3 trading methods:
Trend Following — I will tighten stops on my individual stock positions if required, it will depend on what happens with the index and the individual stocks. This is rule based, with some discretion.
Mean Reversion — With this “deeper” pullback I would have expected a few losses, but the number of setups I am getting have reduced. I have a filter at the index level and at a stock level. The index level is still in tact, but the stock level has reduced the universe I am trading. This says to me that the broader market is weaker than S&P500! This is a 100% systematic system.
Swing — This is also a 100% systematic system. As I have mentioned before there have been occasions where, if it were up to me, I probably would not have taken the signal and the trades went on to make money. Go figure, and I developed the system! This is another of those occasions, based on the above analysis I would have ignored these trades, but as a systematic system it only works if traded with discipline and it has proved to take better trades than I would have and again the funny thing, I developed it!
I am long EFA, EEM, SMH and TQQQ and will be taking further positions in ILF, UDOW, UPRO and TNA. That will be my limit and as you may have noticed they are correlated which leaves me slightly overexposed, but I am aware of the risk and position sizing keeps my overall risk within my tolerance levels. An important part of any trading system / portfolio is knowing your risk tolerance levels.
Conclusion: The S&P500 chart has been “behaving” quite well lately, what I mean by that is that it is respecting many technical patterns and indicators. It is unlikely to keep on doing that, but while it lasts it gives a good indication of how to act on your chosen trading methods and systems. If this pattern continues, I favour a breakdown below 2322 and a test at 2280 before a continuation of the longer term uptrend! Please note I wouldn’t trade this, it does not fit as part of my trading methods and rules, it just gives an indication of what may happen.
For those that celebrate the holiday, Happy Easter.
Any questions? Contact me:
Miguel — TravelingTrendTrader
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