Hey Market Pilots,
The Nasdaq (QQQ) and S&P 500 (SPY) had very strong runs the other week. So strong, that they pushed up and outside their daily 3 Average True Range (ATR)s and clearly needed a rest after that. That rest would either come in the form of a pullback or a sideways flag.
Given that the SPY had reached its 3 ATR two prior times last year on June 9 and September 2, I figured this time could behave similarly and price would drop fairly strongly to the daily 21 exponential moving average (EMA) or a bit lower. So I prepared a trade that would take advantage of that downward move.
I got into the move and advised my Moxie subscribers to do the same. Once in, we got a bounce and another fast move down after the president’s news of increasing the capital gains tax. It pretty much did or die for the markets the next day as the news permeated overnight. The next morning price opened slightly up and was an indication to traders that the news was no big deal and that the market wanted to stay strong.
With this new information from the market, we exited our short positions like so many others did because the structure of the move last Friday in the markets was indicative of a short squeeze. With these results, and noticing the Russel 2000 (IWM) had recovered from its April 20 pullback and the tax news, I decided to take some long plays.
Having a planned move ready in your mind is a way to visualize where the market may go, based on seeing prior actions over years of experience. But when that vision doesn’t come to fruition, and new information discloses itself like the strength we saw last Friday, then you need to be able to change your mind and go with the alternative. Keeping an eye on two or three paths a ticker or chart could go has been helpful for me so I can make these adjustments. Otherwise, we have the tendency to lock in on only one outcome and lose sight of what’s really happening right in front of us. Stay fluid and dance with the market.
Your Profit Pilot, TG