Uncle Bennie

Market Analysis: A technical look at the $SPY

Posted by Investing Freak on June 28, 2011
Market Analysis / 3 Comments

Nearly six months ago I was wired to around 200 news feeds constantly receiving mixed news both from bearish and bullish camps and I sided with one side after doing my own “biased” research. I decided that the market was nearing a top. Ha!! Uncle Bennie wouldn’t let the party die down would he? Everybody loves the cool-aid and the party hats on CNBC keep coming back and making weird noises (yes Jim Cramer I’m talking to you haha).

Fast forward to what happened during those 6 months is summed up in one sentence. “Life happened in ever aspect, got very busy and also stopped the information flow to clear my mind”.

Now that I got that out of the way I will point out that while I took a break from financial news and focused on life I also shared informal emails with a few InvestingFreak readers.

Lets have a look at a few charts I sent out in early May, keep in mind that I like to mainly focus on the weekly for trends while trading on the daily with an eye on the hourly. I will explain why these are the only 3 time-frames I watch in an Investing School video coming soon.

The SPY on a weekly chart dated May 9th 2011. It shows an uptrend channel with the market at the very top of it poised for a correction. The green lines moving up are EMA’s which act as support.

The chart as of today shows the progress for the past 7-8 weeks where a correction did occur and it is bouncing just on top of the Exponential moving averages. There is a bit of “resistance” at 130-130.50 and plenty of support (remember this is weekly and a lot can happen within the week so remember that) at 120-125 area.

Lets have a closer look at how its doing in the daily chart to see what we should look for temporarily.  On the daily the Moving averages are hovering right above in the 129.83-130.57 range and causing the SPY to stay range-bound in this box like formation. Notice an added support line on here and its thinner than the others? That is because its drawn on the daily chart and its a way for me to distinguish importance. The past two days the market has bounced nicely but be wary of the impending resistance on top.

Going long two days ago would have been a good risk reward with a stop below 126 but at this stage going short on the daily $SPY is a better risk reward ratio with a stop right above 131.
Whatever your play is just be cautious, do your own research and feel free to use these charts and my numbers (which aren’t perfect science) to make better trades. Stops are important to being liquid and getting out when you are wrong, do not move stops if the trade isn’t going against you and until we break Pandora’s box there might be more sideways action to play with.

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