Tuesday, May 11, 2010

Daytrader Talk

As far as trades go today $SPY offered two good entries.  Support at 115 and resistance short at the 50SMA.  

Let's go through it with more detail:
We talked about 115 support several times yesterday/this morning and were very impressed how well it was supported at the open.   The market held its ground and rallied straight from support (115) to resistance (50SMA).   The best resistance shorts often come when market travels from support to resistance in one trip -- this often exhausts the usual range for rallies and makes shorting resistance successful endeavor. 

This is the chart we posted yesterday pointing out how the 50SMA on the SPY looks like a "great short spot".

We posted this updated daily chart after we initiated the short. 


The intraday chart will probably be more of interest to the daytraders in the crowd (which we guess is at least half our audience).   Note the slight high base at 117, and then a break away from the EMA right into resistance (50SMA daily).  Remember when you short resistance you want the stock to be extended -- this was textbook set-up.  We always wait for reversal first before shorting with stop at high of day.  We were a bit slow off the bat today and did not get in until  117.24 at 1:51:46.  Stop at that point was a penny above the high117.37, 13 cent stop.   We took first profits at the EMA -- when we initiate resistance short away from the EMA we always cover some on the reversal back to the EMA (20EMA/5 min).  Second and final cover was in front of the 2 day 116.4 -116.5.  In retrospect we should have left on a portion as it went lower, but we'll take it.

We noted this morning that crude was strong at the open.  Having crude roll over while SPY was making new highs (arrow on chart indicates time when SPY at high of day) was a great confidence booster to go short as we felt crude was leading the market.   Why?  Crude was firm at the open but market was weak -- crude rallied and market reversed and rallied.  So when crude started to roll and SPY was at high of day and at the 50SMA resistance, then chances of a short trade working were high.

This is typical trade around support/resistance.  As you can not a homerun, but a single.  This is what we try to do day in and day out.