SPY gapped up and held its gains to close above 111 for the fifth time in eleven days. There is no change in the medium-term picture. SPY remains within a rising price channel overall with key support around 102. The ETF surged above 110 the second week of October and has been oscillating around 110 the last three weeks. It is positive to see the majority of the early November gains holding. Also note that RSI is holding the 40-50 zone to keep momentum bullish.
Today I am showing the 60-minute chart for some perspective. There have been five gaps since November 16th, three up and two down. Despite these gaps, SPY remains range-bound with support around 109 and resistance around 111.8. Trading within this range is treacherous to say the least. Buying and selling the gaps would have resulting in a few whipsaws. Such gaps are difficult to trade because they immediately skew the risk-reward ratio. Buying at 111 on yesterday's gap does not offer a good risk-reward ratio because SPY is trading near resistance already. Similarly, selling on Friday's gap below 109 did not offer a good risk-reward ratio because the ETF was immediately oversold. It is vitally important to plan the trade and trade the plan. Identify support, resistance, entry point, target, stop-loss, risk, reward and upcoming events before jumping in headfirst. If the entry point is surpassed, then it is back to the drawing board.
Overall, I still favor the bulls because the medium-term trend is up, short-term support at 109 ultimately held and the last gap was up. Key support remains at 109 and another break below this level would be short-term bearish. This week will culminate with Friday's employment report. There is often a big move the Thursday before this report because initial claims are released at 8:30AM ET. We will also get an employment preview with today's ADP report at 8:15ET. Needless to say, we can expect another exciting 2-3 days as SPY battles resistance.
Overall, I still favor the bulls because the medium-term trend is up, short-term support at 109 ultimately held and the last gap was up. Key support remains at 109 and another break below this level would be short-term bearish. This week will culminate with Friday's employment report. There is often a big move the Thursday before this report because initial claims are released at 8:30AM ET. We will also get an employment preview with today's ADP report at 8:15ET. Needless to say, we can expect another exciting 2-3 days as SPY battles resistance.
About the author:
Arthur Hill, CMT, is the Chief Technical Strategist at TrendInvestorPro.com. Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed market technician. Arthur has written articles for numerous financial publications including Barrons and Stocks & Commodities Magazine. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from the Cass Business School at City University in London.
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