Monday night SPY Training

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Don’t forget, with SPY or any stock, that you need to be checking not just the intraday 5m/hourly charts as well as 15m and 30m charts, but also study the daily, the weekly, and the monthly charts. You need to know where key support and resistance levels are. Also remember the 5ma and 10ma are key moving averages, along with the 20ma (on the center bollinger band is how I use it). Longer moving averages aren’t important for us because we aren’t holding on to it that long, and it’s no where near the other moving averages. the 50ma becomes important if SPY starts dropping but we aren’t there yet so trade what’s in front of you.

Now, with that said what is the chart telling me now? SPY had a strong move up last week, and the RSI bumped 70. When it gets to 70 it likes to consolidate some more and get back down around 54. it’s at 58 now. Also, the 5ma is a strong moving average indicator of the trend. When SPY is over the 5ma, you’re pretty safe swinging calls. When it gets below the 5ma, it’s starting to consolidate. So that’s where we are now. It’s also very important which direction the 5ma is pointing. Right now, it’s still pointing straight up. So the 5ma is also an important support/resistance number.

Now that we are below the 5ma, we look to the 10ma for support as it did today. As long as SPY holds over the 10ma the consolidation can be sideways before moving back up over the 5ma. If SPY gets below the 10ma, you can be pretty sure the 5ma will start pointing down as the lower consolidation moves it down. This will typically lead to a dead cross the next day, which is a sign of even further downward movement. So the 10ma is a very important support line.

Now after that breaks, we look to the 20ma or the center of the bollinger band if you’re using that study. The 20ma is important because most traders consider a stock over the 20ma as bullish, under as bearish. It’s like a line in the sand. So the 20ma is a very important support line. If you look at SPY’s chart you’ll notice any time it’s in an uptrend no matter how choppy it is, the trend keeps moving up as long as it maintains that 20ma.

  • Dead Cross is defined as the 5ma pointing/moving down and crossing into the 10ma. It’s a sign the trend has changed to a downward trend, at least for the short term.
  • Golden Cross is defined as the 5ma pointing/moving up and crossing up into the 10ma.

If SPY gets too far extended from any of these lines, like it did Thursday, like the rules of gravity it’s going to come back closer to these averages. SPY is in the strongest up trend as long as it is supported by and holds over the 5ma. This is true on the daily chart and the weekly chart. If you now look at the weekly chart for SPY, with the same 5ma and 10ma, you’ll see it smooths out the choppiness and presents a nice picture of the up trend. One thing you may notice if you are looking at it now, is how high the 5ma and 10ma have gotten from the 20ma. It’s starting to look kinda like Oct/Nov of last year. See that? The RSI hasn’t reached those levels, nor have other indicators, but what it’s telling me is don’t be surprised if we get some more dramatic consolidation downward.

Now, don’t start buying puts on SPY because it looks extended. Many stocks including the ETF SPY have ridden high for a long time before falling back to earth. It’s totally okay, trade what’s in front of you which right now is the beautiful strong up trend. Just be prepared for some pull back consolidation when it comes.

So support and resistance for SPY for Tuesday: 287.18, 288.84, 289.37, 290, 290.40, 290.80, 291.20, 291.74, 292, 293.20, 293.50, 294.28

Note of credit to @options_snipper on twitter for learning most of this!

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