$SPX for the week 21/11/2016
P.S. It is a shortened trading week this week with the holiday on Thursday and shortened trading hours on Friday.
Price is slowly edging towards the all time high that was recorded in August at ±2193. For me this creates a scenario where the risk outweighs the reward by taking a trade before the high is cleared. The risk is a failure around 2190–2200 and a correction before trying that level again or staying in this wider range consolidation. Any position entered before the break could potentially get caught in a sideways move tying up capital unnecessarily . If there is a break a position can be entered after the break without missing a substantial move. The risk therefore is higher entering prior to the break as opposed to waiting for confirmation of a break and getting a higher probability outcome.
The short term support is at the 50 day MA currently at ±2146. If there is a pullback and this level holds I will be more confident in a move higher but for now I will remain cautious and protect capital.
Where does this leave me on my 3 trading methods:
Trend Following — As mentioned above it is a better option to wait for a confirmation than trying to predict the next move. I will therefore not be entering any new trades and will continue to manage existing trades based on the reaction to the resistance level and the reaction to the support level should there be a pullback. If there is a failure to break higher of course!
Mean Reversion — The move higher has meant little opportunity for my mean reversion models, a pullback is required to get suitable entry points and I have no interest in shorting this market.
Swing — I am long some international index ETF’s and have been chopped around a little, but I am quite happy to take small losses & profits or break even trades in anticipation of a move higher should it happen. On the U.S. indices I am a dip buyer which has not happened since the elections.
Conclusion — remain patient and wait for a potential break higher and a higher chance of success on longer term trades and in the short term I favour buying dips, but I am ready to cut those trades at any hint of weakness.
Miguel — TravelingTrendTrader
LinkedIn: Miguel Teixeira