This had been an exiting week for traders as the equities market was
on a verge of a major sell off. Fortunately, we were watching the market
very closely and saw the sentiment and market internals shift shortly
after a new low was set last week. That was an early warning for us that
a trend reversal to the upside could happen at any hour or day this
Wednesday and Thursday’s rallies were on solid volume and the market
internal indicators along with market breadth were strong also. There
has been a large surge of new highs across the board on the NYSE, NASDAQ
and AMEX. These numbers tell me that it’s not just one sector moving
the market; instead it’s a broad market advance (institutional buying).
While I don’t typically try to pick major tops or bottoms because of
the added risks and lower probability of winning trades, I do tend to
spot them forming a few days in advance allowing me to tighten stops and
take some profits on positions.
Trend reversals typically have large violent moves near the beginning
and end of their life cycle making things not only tougher to trade but
potentially more costly. Once I see a trend confirmed with moving
averages, volume, and sentiment along with market breadth that’s when I
start looking to take positions on pauses or pullbacks to support zones.
This greatly increases the odds of winning/making money from the
market. There are some really great Options
Trading Strategies for taking advantage of these volatility changes in
the market which you can get at OptionsTradingSignals.com
SPY Daily Chart:
As you can see the market has clearly broken to the upside above key
moving averages after finding support at the 50 day moving average. This
rally has some solid volume behind it which I like to see also.
The first 3-4 days of a trend reversal generally post some give moves
but after that initial thrust expect a pause or pullback to happen.
SPY 60 Minute Intraday Chart:
We were lucky enough to take profits on our inverse SP500 trade as the
market started to give us mixed signals of a possible rally. A couple
days later on Nov 26th we saw a major shift within the market sentiment
preventing us from shorting the market again.
Two days later the broad market gapped higher triggering protective
stops/short covering sparking a fierce two day rally which took the
market up to a major resistance level. I do feel as though the market is
going higher, but right now, everything is WAY over bought and trading
at resistance. Even if the market moves higher for another 2-3 days and
breaks this resistance level, it will most likely have a pause, or
pullback as it regains energy for another thrust higher.
Mid-Week Trading Conclusion:
In short, it looks as though the trend is now up and the Christmas rally could be gearing up for a good one!
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