This morning was an interesting one as the S&P500 went below its low from Monday resulting in a lower low. The lower low was the first one put in the entire month of May. While the lower low may have served as a short signal to some, it appears to have been a good ‘buy the dip’ moment as the index has since recovered all of its losses and is trading at a fresh all time high. Was I shorting the lower low? No. Why not? Because it was not made within the first 30 minutes of the trading day.
Pretty simple what I’m looking for before I think about shorting this market: a lower low made within the first 30 minutes of the day. If you look at a 60 minute, 20 day chart of SPY, you’ll see that nowhere in the last 20 days has SPY been able to go below its previous days low within the first 30 minutes of the day. That’s a real sign of strength to me and signals that traders are approaching the opening bell with a bullish mindset, regardless of where SPY has been opening.
On the day that SPX does make its short term top, there are going to be some traders who were short from the day before and they can have their moment of glory as “successfully timing the top,” I’m here to tell you not to be one of those traders. Those same traders are the same ones who have been getting smoked on their short bets for the last few months. Your safer bet is to to wait for a signal like the one I outline above and take the short trade then. While you won’t get the definitive top, you’ll be sacrificing entry point for level of certainty and that is always a fair trade off in my view. In the meantime, keep riding the trend higher as 1,700 looks very reachable at this point in time.
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