Strong Trends Seldom Die Easily

The trend in the market has been steady and under low volatility since the beginning of January. Almost two full months with only a few range expansion days. This type of steady, strong trend almost never dies easily without putting in a fight. That’s why it is so difficult to predict the end of a trend. Whether trying to predict price or technical breaks is impossible and a basically requires a ton of luck. That’s why we don’t make “prediction” calls for total trend reversal tops/bottoms. At least with real money. We can look for signs of change and take on a small, short-term risk trade to fade and try to catch a trend top or bottom, but only with very small risk exposure. Fading tops or bottoms requires “working” the tops and bottoms through active trading or hedging techniques to stay in the game long enough without getting squeezed out of the market prior to the trend shift.

So the $SPX and SPY, based on Friday’s action, still holds true to form as the technical strength and price action shows me the trend is not going to die easily. The shot across the bowel on Wednesday told active traders like myself to go to cash or darn earn 100% cash as the first line in the sand ( 20 period ma) was breached Thursday but recovered Friday. For the SPY, the level is 151.20. If we see a few closing prices at or near this over the next few trading sessions, then we will look for the break of the 149.60 support area which will most likely bring the pain to the 50 period MA at or near 147.80.

The chart below maps the trend. The steady movements of the ranges and the technical strength of the RSI, OBV and the Stochastic. But notice the RSI dip to test the 50 mark quickly. This is concerning. Another concern is the OBV has slightly flatted out for the past two weeks as the markets grind higher. So we can only watch for price action to pinpoint the next phase or lack of up-trend moment based on closing prices this week or next week. My trading model will reflect more day trading and quick swing trading as I adjust the price target levels or trading sizes that I may hold overnight to reflect higher risk and potential trend changes.

SPY

Nick Pirraglia

TradersThinkTank

About Nickolas Pirraglia

Nick Pirraglia started his career in trading in 1991 after returning to the US as an Army Officer deployed in Iraq. He began as a bond broker and worked his way into trading. Expert mentoring, hard work and a disciplined approach to the markets has allowed Nick the ability to maintain a very successful career in Capital Markets and Trading for over 20 years as a professional OTC Market Maker and independent trader. Nick has also managed the trading desks for a two Dallas based capital management companies and traded equities for a Dallas based hedge fund. Nick has trained and mentored thousands of customers in the rigors of trading, technical analysis and risk controls. Recently, Nick had broadened his market experience through the design and product management of two automated trading platforms. He has the pleasure of working with some of the brightest minds in the trading community and has collaborated with experts in data, design, engineering and trading psychology. An avid long distance runner, Nick completed several marathon events, qualified for the Boston marathon, completed several long distance Triathlons to include finishing a full Ironman triathlon.
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