Short Spy Continued

Chart patterns are not so easy.  The previous setup http://hotelonboardwalk.blogspot.com/2014/04/short-spy-trying-out-stock-charting.html shows we are getting ready to go short.  The problem was the candle was not really a shooting star, since we were not at the proper resistance level.

Now this setup looks more promising, but it is always difficult to know where to draw the support and resistance lines.

Look at the last two trading days by the red arrow.  Shooting star type of candle at the resistance line, followed by a small Harami.  These two candles indicate a down day for the next session, but they are not the clearest signals, and they may not be at the proper resistance level.

If the MACD means anything, it could still be time to buy, but that contradicts the candlestick patterns.

Take a closer look to see why this is so difficult.  There is a tiny shadow on the top of the green candlestick (where the red arrow is), so is it a shooting star, or not?  Then the next red candle is fully contained in the previous candle, so is it a harami?  Harami in this case means the green candle is pregnant with a red candle, so the the next session to follow should be red, or down.

This subtle pair of indicators means SPY should be down tomorrow, but it is easy to miss.  Also, candlesticks only tell what will happen the next session, and often only if they are on the proper support or resistance level.  It could stay near this level for another few sessions before we get a clearer signal.  By the way rather than short SPY, or buy to open some SPY puts, you could also buy some SPXU, which shorts SPY without having to worry about expiration.  You still have to know when to get out, as this instrument seems go down fast, but that's what stop and limit orders are for.  Remember, this is a short term trade, as the SPY is generally on an up trend for the long term.

This exercise is a good reminder to just keep a long term view of investing.  Trying to understand and follow all these signals may give an advantage to short term traders, but the billionaires seem to still to do better with a buy and hold strategy.

Anyway, I expect to see the market down soon, but how far, and for how long?  And how soon?  Who knows?  This could be a year to sell in May, and come back in September, but that old expression does not seem to be based in reality either.

Again, not a recommendation - just an exercise in chart pattern reading skills.

Short SPY - Trying Out Stock Charting Skills

As I get a better understanding of chart patterns, I see more and more trading opportunities.  I thought it would be a good idea to document some of my ideas, to see if I can improve my predictions.

I am looking at this short position for Monday, April 21, 2014.  It may be a coincidence, but the market always seems to be up just before a holiday weekend.   The following week will tell me if I was correct or not.

Here is my idea to short SPY.  The market has been on an uptrend, but temporarily on a down trend.  See how it went down in February, and then just kept going up.  That's why the idea to be short is temporary.  In general, it is a good idea to follow the market, and stay long for the long term, but there could be some quick opportunities, if you know when to get in and out.  I don't think the indexes are as good for shorting as individual stocks, but I like what is developing on the charts.

Notice that the index breaks down as it tests the support level (blue line) for the third time, and then comes right back up to the resistance (green line).

SPY 1 Month, Daily Chart for April 17, 2014 (click chart to enlarge)

I think it will not stay around $187 for more than a few days, at most.  Then it should be down to my first target of $181.50 within a few days.

I made a few notes on the chart, that seem to support my thesis, but we'll have to wait and see, won't we?

Here is the daily chart of SPY for Apr 17, 2014.  Notice the price and volume action at the close.

This is close to what I was expecting.  The intraday action was forming something similar to a shooting star, where it opened near the previous close, shot up, and then headed back down in high volume.  It didn't close as low as I had hoped, but we may not be at the top of the resistance level yet.  I think it will be there in a few days.

My idea is to be short for the next pull back, then look for a chance to get long.

I tend to be most successful with long term investments, where I don't have to be concerned with a few price fluctuations.  This type of short term trading is more risky, so be careful to use a small percent of your portfolio to trade for the short term vs. a larger amount to invest for the long term.  I started late, so I am looking for ways to improve my tiny retirement portfolio.

Disclaimer: I may be holding some of the positions I discuss, so this information is not meant to be a recommendation to buy or sell anything.  It is more of a log for me to see how my trades have gone.  The charts are from freestockcharts.com, which I find very useful