SPY Long and Short Case

Last week and then again on Monday SPY broke out of both seams of it's wedge pattern, last week closing below on Thursday then Friday rallying up to the very narrow top of its range and Monday closing, barely, above the top of it's range. This is typical of a sideways consolidation pattern, vs a rising wedge in a rising market where breaking out of these wedged ranges usually means an expansion. The trick is to be able to capture the expansion/contraction move without getting churned by all the false starts.

As this wedge narrowed and continued to head fake breakouts and breakdowns, it moves into a trading channel. Back in February and March we had this sideways consolidation pattern emerge after we broke out of the initial wedge pattern and extended sideways into the, you guessed it, sideways channel. Later in March we broke below the bottom of the channel, decidedly, and have once bounced up to test the bottom of that channel in mid April.

Current Status of $SPY - Bullish

This brings us to today. Smack dab in the middle of the trading channel after putting in a nice little bottom looking candle, with a long thick down and narrow body at the top. Candlestick traders would call that a hammer, I tend to look at those as a characteristic of sellers attempt to push lower and buyers coming in aggressively at a price that a lot more people (machines) think is valuable and overwelming the sellers in volume.

The bottom of this reversal candle is now the bottom of our sideways channel. The next trading day our CCI based also scooped up a long option position about $3 above the bottom around the $262 level.

The move is expected to head to the top of the trading channel at approximately $274 before we meet any trouble. The average algo long move is about 9-12 points which gives support to the $274 price level being the take profit range. In addition this level coincides with a longer term downward trend line from the top at the end of January and March's highs.

In other words there is a whole lot of attraction for the SPY getting above $270 and testing:
1)The top of the sideways channel
2)The downward sloping trend line from the 2 previous lower highs of 2018

This would bring a lot of bullish commentary that we have put in a higher high, from April's recent swing high, broke and held above the 50 day moving average (yawn), also battled the 200 day moving average and "won". The bull case is on and we are off to new highs after this record setting earnings season, so that we can finally lock in the "longest bull market in history" commentary.

Bearish Case

Staying in the bear camp a move up to fill the gap at 281.58 would still keep us firmly within the longer term bear case and be a nice head fake to run stops and make people look like the idiots that we are! Yesterdays failure to close above the 50 day moving average would signal some resistance to go higher from here and turning lower down to about the $263 price before making another attempt higher should be expected and not be considered a sign of weakness as this is typical of reversals (even inside trading channels). Where it gets to be extra bearish is a break below the channel around $260, which would likely set a multi-day selloff before consolidating in yet again, another sideways consolidation pattern (channel).

Trading Plan

This is how I'm approaching things on $SPY
There is still plenty of upside from this recent local bottom at the $260 level, potentially up to the $281 level and I have both long/short positions longer term straddle covering expansive moves higher (Above $290) and lower (below $240) while trading within the sideways channels continues to generate income.

CCI-Algo long at $262.63 (a move down to this level would be a place to consider adding long position).
No stop loss as Algo will generate the sell signal and move into a short position if trade falls out of parameters.

This analysis is circulated for informational and educational purposes only. There is no consideration given to the specific investment needs, objectives or tolerances of any of the recipients. Additionally, actual investment positions may, and often will, vary from its conclusions discussed herein based on any number of factors, such as investment restrictions, portfolio rebalancing and transactions costs, among others. Recipients should consult their own advisors, including tax advisors, before making any investment decision. This report is not an offer to sell or the solicitation of an offer to buy the securities or other instruments mentioned. The research utilizes data and information from public, private and internal sources, including data from actual trades. While we consider information from external sources to be reliable, we do not assume responsibility for its accuracy. The views expressed herein are solely those of the author as of the date of this report and are subject to change without notice. The author may have a significant financial interest in one or more of the positions and/or securities or derivatives discussed.

A bit about me and my trading Journey

How I became a professional trader
https://steemit.com/introduceyourself/@chris-d/how-i-became-a-professional-trader
Trading during 9/11 attacks
https://steemit.com/crypto/@chris-d/short-selling-when-the-world-is-falling-apart
A Day in the life of a professional trader
https://steemit.com/cryptocurrency/@chris-d/the-day-in-the-life-of-a-professional-trader