This week the market has gone quite a nice distance, 3 points, in a week where the market was up 4 out of 5 days. As we have stated on the previous post, the bullish sentiment still goes on and the pinpoint rebound call from 163.00 still continues.
Last week we have mentioned the pivot resistance level around the gap that formed few weeks ago. This level – 167.30 – was an important one, especially in light of the numerous attempts of the market to reach beyond that 3 weeks resistance. Using ProTradingIndicator’s Pivot Break tool on the daily chart enables us to observe that level in a more convenient and easy way.
Actually what the market has done on sunday, is raising precisely under the 167.30, forming a Bullish flag, showing a strong buyers action. Half an hour later the price breakthrough has happened and the next day the price has already gapped up.
This kind of scenarios is quite common. The Pivot Break indicator tells us about a potential level of support or resistance, then we drill into a lower time frame and look into hints of that level being pierced. This time, a trained trader would put a stop order to buy above 167.30 and a stop loss order under the flags low – 167.05. The risk ratio on that trade would be 1 to 10 since the target is the gap opening. Not bad for one trade…
As for next week SPY’s support and resistance levels, we have 168.30 as the previous down gap level which traditionally acts as support/resistance, something which we have already seen happening this week. The next lower support level will be the same 167.30 level which has been talked about so much lately.
As for the closest resistance level, we have the early August high of 171.00, which also happens to be the all time high for the SPY. In regard of the late geo-political instability regarding the situation in the middle east we don’t know if the breaking of that level will be a probable occurrence…Nothing is left to chance though, we will still observe price action and act up it.
Trend Continuation – Disney (DIS)
Last week there was a rumor that Disney is going to perform a few billion dollars worth of self acquisition of its own stock in the market. This is a piece of news that could be interpreted in many versatile ways. The important element here is that for us, it doesn’t matter what the potential interpretation is, we act upon price action.
As you can clearly see on a 10 minute chart of DIS, there’s a big green candle performing a $2 move, accompanied with high volume. What does this tells us? we simply know that buyers have violated the market balance for a brief time and now we should get prepared for the aftershock that (almost always) comes after that kind of move.
All we have done is place ProTradingIndicators Pivot Break tool on the 10 minute chart and look for a green line where we could place a Long order beyond it. This level was around $66.30 and that’s the price we are willing to buy from. Indeed, on Friday the order did get filled and went vack a little. For now, we believe that late investors that will get to know that piece of information would also want a piece of the cake and get into the stock next week. As for now, our stop is just below the 66.25 level, on this trade we look for a 1 to 4 risk ratio.
Some of you traders out there may ask an interesting question: If I know the stock is on a strong Bullish sentiment, why shouldn’t I buy only over a higher price? Apparently it doesn’t make sense but the reasoning behind that kind of orders is quite simple. The fact that I send an order to buy only if the price has exceeded a certain price means that I would like to get an additional confirmation of the price action that buyers are still committed to buy the stock. I want to make sure that this up shooting price was not a momentary burst of sells or buys of an institutional that liquidates his big position. I want to make sure that there is a lot of buyers behind that move, as much as possible, and buying above a certain price gives me another way to make sure of that.
Oil & Gold
the Oil ETF: USO continues a slow upward move since the shattering of the 5 months pennant. It still looks good on the mid to short term perspective, showing higher highs and higher lows with decent amount of volume. It seems though that the pace has slowed a little and for a good reason – we have been up a lot lately and the market looks to realize some gains.
One thing that could shake this market up a little is of course geopolitical event, if you think you can play on these, good luck…
Gold on the other hand (GLD) has experience a deep rollback beyond the previous high pivot, we are still on a higher high and higher low pattern so technically we are still on an up trend. Please notice the important support level at 123.55, one which is formed by the Pivot Break indicator. This support level has some importance and breaking it would probably set us for a period of consolidation-to-lower price action.
Economic calendar for next week.
As always, we are very cautious on trading close to the publishment of important economic data, we list here the ones that you should be aware of:
Sep 18 @ 10:30 AM Crude Inventories (Maybe a USO play…?)
Sep 19 @ 10:00 AM Existing Home Sales.
Sep 19 @ 10:00 AM Leading Indicators (Economic indicators, not technical ones…)