SPY, next stop 257!

The party isn’t over yet. Last week we saw a 4.67% drop in the SPY and the train doesn’t stop here. While we can expect some slow down in the bearish direction on Monday and possibly Tuesday, there is still more room to fall.

Why 257?

257.28 is the weekly 100 simple moving average which we haven’t touched since June of 2016. With a double top made from the first week of September and first week of October further builds the case of more downside. It’s also the recent lows of both February and April of this year. 

Will 257 hold?

I think it will all depend on how the rest of the earning seasons play as well as the up coming mid term elections. If you are already short the SPY or planning on shorting it, 257 could be your first target. Peel off some of your position and then hold some and move your stop to break even. 

How to play the rest of the market

If you are day trading, I’d recommend getting in and out of your trades quickly. With the increase volatility, we can expect to see bigger than normal ranges. Reduce your trading size and/or widen your stop loss to compensate the volatility.

If you are swing trading, try to look for stocks that are not following the general market trend especially if you only trade bullish. I’d also recommend reducing share size in case your trade gets affected by a negative gap. For more about gap trading check this out: different types of gaps

SPY weekly chart


Don’t let the bearish action scare you

Warren Buffett once said that as an investor, it is wise to be “Fearful when others are greedy and greedy when others are fearful.”

If you are a long term investor, this is the perfect time to start looking to add to your long term portfolio. Keep an eye out for your favorite stocks. Pick a few up, maybe pick up some more if it continues lower.

Not everyday will have a big bearish move. If anything I expect Monday to retest higher before continuing lower. Most of all, don’t let the market get to you. Manage your risk and make some gains.

Be the first to comment