Bull Trap from Last Week Re-testing Key Support
In our last trading plans published on Wed., 12/07, we wrote: “Last two sessions turned the recent spike up into a bull trap. However, our models are indicating that the index is likely to find some support around the 3910-3915 range. Longs might want to wait to see if the index holds this level, and shorts need to be nimble in taking their profits if it does”. Our models went into an indeterminate state since then and have come out with some trading levels only this morning.
If you went to sleep after reading our last trading plan and are waking up today, you would not realize that a full week of trading transpired since then, as we are exactly where we were then! The bounce from our published support level proved only short-lived post the FOMC rate decision yesterday, and the index is feeling heavy again. With the key support level of 3900-3910 in the range again, BOTH bulls and bears need to be nimble in any positions they open today, as any bounce or breakdown could be swift and spiky.
Positional Trading Models: Our positional trading models indicate going long on a break above 3955 or 3925 with a 35-point trailing stop and a hard stop on a break below 3940, and going short on a break below 3930 or 3895 with a 40-point trailing stop and a hard stop on a break above 3913. Models also indicate instituting a break-even hard stop once a position gets into a 10-point profit level.
By definition, positional trading models may carry the positions overnight and over multiple days, and hence assume trading an instrument that trades beyond the regular session, with the trailing stops – if any – being active in the overnight session.
Intraday/Aggressive Models: Our aggressive, intraday models indicate the trading plans below for today.
Trading Plans for THU. 12/15:
Aggressive Intraday Models: For today, our aggressive intraday models indicate going long on a break above 3955, 3948, or 3915 with a 9-point trailing stop, and going short on a break below 3940, 3933 or 3910 with a 10-point trailing stop.
Models indicate long exits on a break below 3963, and short exits on a break above 3896. Models also indicate a break-even hard stop once a trade gets into a 4-point profit level. Models indicate taking these signals from 11:01 am ET or later.
By definition the intraday models do not hold any positions overnight – the models exit any open position at the close of the last bar (3:59pm bar or 4:00pm bar, depending on your platform’s bar timing convention).
To avoid getting whipsawed, use at least a 5-minute closing or a higher time frame (a 1-minute if you know what you are doing) – depending on your risk tolerance and trading style – to determine the signals.
IMPORTANT RISK DISCLOSURES AND NOTICES – READ CAREFULLY:
(i) This article contains personal opinions of the author and is NOT representative of any organization(s) he may be affiliated with. This article is solely intended for informational and educational purposes only. It is NOT any specific advice or recommendation or solicitation to purchase or sell or cause any transaction in any specific investment instruments at any specific price levels, but it is a generic analysis of the instruments mentioned.
(ii) Do NOT make your financial investment or trading decisions based on this article; anyone doing so shall do so solely at their own risk. The author will NOT be responsible for any losses or loss of potential gains arising from any investments/trades made based on the opinions, forecasts or other information contained in this article.
(iii) Risk Warning: Investing, trading in S&P 500 Index – spot, futures, or options or in any other synthetic form – or its component stocks carries inherent risk of loss. Trading in leveraged instruments such as futures carries much higher risk of significant losses and you may lose more than you invested in them. Carefully consider your individual financial situation and investment objectives before investing in any financial instruments. If you are not a professional trader, consult a professional investment advisor before making your investment decisions.
(iv) Past performance: This article may contain references to past performance of hypothetical trades or past forecasts, which should NOT be taken as any representation or promise or guarantee of potential future profits. Past performance is not indicative of future performance.
(v) The author makes no representations whatsoever and assumes no responsibility as to the suitability, accuracy, completeness or validity of the information or the forecasts provided.
(vi) All opinions expressed herein are subject to change at any time, without any notice to anyone.
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