The range, volatility expansion came, where to next?
The support level at 2450, also the 50MA gave way this past week. A failure to regain this level in the next few days will probably open up a test at 2400. At this stage the uptrend remains intact, however an extended sideways movement remains a possibility.
The key support level is now at 2400 and I still favour buying dips to that area. The channel I have mentioned over the past few months has support at 2400 creating a cluster in that area. Below that opens up a test at the 200MA.
Resistance is now the 50MA and previous support / resistance levels at 2450. A failure to break above in the next week should see a test at 2400.
I repeat from previous posts, I do not use this analysis to trade the index, I use it to guide my trades on individual stocks mainly on my trend following model. At this stage I will be monitoring the above mentioned levels on how to approach my trend trades.
Where does this leave me on my 3 trading methods:
Trend Following — I am not looking for new positions at this time. I will add to current positions on valid setups. A break of support on the index and I may tighten stops on current holdings. For now stand aside and assess. There is also potential for pullback trades and I will be looking for opportunities that provide good risk:reward trades. Patience.
Mean Reversion — Further losses taken this past week. This strategy has been having a rough time for the past ±3 months. It is common to have periods like this.
Swing — After several quiet weeks, the “down day”, (I will call it that as it could be a dip, correction, start of a change in trend…) presented setups to go long on several of the index ETF’s in my watchlist and I am almost full up on allocation. Long the main US indices using 3X leveraged ETF’s $UDOW, $UPRO & $TQQQ (Dow, S&P500 & Nasdaq). Long: Emerging markets — $EEM, Developed countries other than US — $EFA, Pacific ex-Japan — $EPP and Europe — $IEV.
Conclusion: I remain a dip buyer by following a process i.e. trading systems with an edge, whatever happens on a trade by trade basis is irrelevant, it is the long term that counts.