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.
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.
, by Robert T. Kiyosaki
, by Joel Greenblatt
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