We formed a downtrending price bar in the cash S&P500 on Tuesday. The price pulse upwards from the fractal low (blue diamond) and CIT (green circle) of 10/24 completed at 1544.67 where a new downward pulse began. Today is circus day and like everyone else I will be watching the center ring at 2:15 Eastern Time. Regardless of that event, I was looking for a short-term low to occur at this point and yesterday’s downtrending bar fits the bill. The same timing work is pointing to this being a very quick and short pullback with a new move upwards into at least Friday if not early next week.
The only news I have on the technical front is that the market fell to the short (red) and medium (blue) moving averages I track while the Derivative Oscillator (not shown) has moved back to the zero line. One thing I don’t want to see is for the oscillator to fail here (turn back down). That would be a bearish event.
Is a tradable pull-back in place? For the purposes of this blog yes; we have had enough evidence that a new upward leg is in progress – a fractal low and CIT on 10/24. We have now had a hesitation in the trend and a move above yesterday’s high will resume the uptrend. For my blog related trading account at Investopedia (the No End competition) under the name of SaxbyFox, I will be putting in a buy stop for SPY shares at a price of 154.45. My initial stop (when filled) will be just under either today’s or yesterday’s low (whichever is lower). Using a stop of 152.86 (yesterday’s low was 152.87) I am exposing 1.58.
This theoretical account is worth $100,801. My Maximum trade share size must allow a risk for the trade, based on the stop loss, of no more than 0.5% of account equity. Therefore, for today’s trade: 100,801 account x 0.005 maximum loss = $504 maximum loss per trade. $504 / 1.58 stop = 319 share maximum.
Bottom Line: I am using yesterday’s pullback as a reference point to enter a long trade but I need the market to prove itself to me by taking out the latest swing high.
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