A strategy we’ve had success with in the past is buying stocks or indexes that have previously been downtrending when they break above their prior days high. Vise versa, we’ve also had success shorting stocks or indexes have been previously been uptrending when they break below their prior days low. The former results in a “buy signal,” and the ladder results in a “sell signal.”
Well on Tuesday, the S&P500 fell below its prior days low (1,402) for the first time since the most recent uptrend that began on 3/8 started. Thus, a sell signal was generated and it will stay valid Wednesday if SPX remains below Tuesday’s high (what will be the prior day’s high) of 1,409. The last time a sell signal was generated was on 2/29 when SPX was testing resistance around 1,370. What followed was a modest 2.5% pullback to 1,340 which held as support, much like it did in the middle of February (see 2/13-2/16).
Fast forward to the current state of the market; SPX has again generated a sell signal this time as it is testing resistance around 1,400. If this sell signal plays out like the last one, then we could see a pullback to about 1,370 (that would represent a 2.5% pullback from Tuesday’s close of 1,405). We would consider a pullback that holds around 1,370 a major victory for the bulls, and a sign of continued bullish momentum moving forward. Why?
The 1,370 area capped the market in 2011 both in April and May, then again most recently in February. In technical terms, it is safe to say that 1,370 was definite resistance. So from a bullish perspective, the best indicator of bullish momentum is when an area of previous resistance becomes future support.
Would a 2.5% pullback be frustrating to those on the sidelines wanting a greater dip? You bet, which is another reason the powers that be might now let SPX get much lower than that if it does indeed pullback. Remember, the more people who stay on the sidelines frustrated because they are missing out on a rally represents that many more people that could come into the market and propel it higher later on.
The following stocks were reviewed during Tuesday’s classroom session. The ones with (**) next to them are viewed as having favorable set-up’s right now for day trading. The ones with (*) are simply “on watch,” and Stockhaven is waiting for either a breakout or volume confirmation before they are in play for day trading:
STVF** – in play for gaps
CCTC** — $0.185 is the key breakout point for continuation
Did you know that you can watch Stockhaven trade live in real time?
Learn how to daytrade by watching someone else trade! Watchhimtrade.com is the only site that lets you look over the shoulder of a professional daytrader.
Watch this video now where he shows you how it’s possible to make 100% in just 5 minutes!
- SH @ the bell 10/20/2011: Copper and oil signal potential for big sell off in SPX
- SH @ the bell 3/5/12: Short signal in tact but be on your toes
- SH @ the close 3/8/12: S&P500 advance triggers a buy signal
- SH @ the bell 2/13/12: VIX call premiums signal caution
- SH @ the bell 3/1/12: Is a pullback finally in the cards?