Long

S&P 500: Very last chance for bulls to get back in control

Updated

The extreme selling has stopped this Friday, which increases the odds that the selling climax has been reached and shorts are getting closed before the week ends. Thereby increasing the likelyhood that next week is more bullish again. There is also a quant analysis which favors the bullish side on the Nasdaq in the next trading days, which would help the "S&P 500" to stabilize: biiwii.com/2018/03/22/when-ndx-has-closed-at-a-multi-week-low-on-a-fed-day/

I'm only going long if the "S&P 500" moves back above 2667. If that happens I'm going to use a stop loss at 2638 and a target above the upper range of the open gap at 2725. This trading idea offers a risk/reward of 2.

Note

For risk takers here is another entry idea including the new low. This idea has a higher short-term risk, but offers a more than twice as large reward:

Entry: 2740
Stop loss: 2723
Target: 2710

Risk/Reward: 4.1

The Friday session has not closed yet, so there remains the risk of a lower low before the week closes. In that case I'm going to present a new entry idea,

Trade active

The S&P 500 held above 2625.22, thereby fitting the outlook of the last update. A tiny long position is now open from 2640. As explained before:

Entry: 2740
Stop loss: 2723
Target: 2710

Risk/Reward: 4.1

Trade closed: stop reached

The long got stopped out. The market moved in the right direction, but then failed to break above 2650 and crashed lower again. I'm somewhat fine with it, because holding a long over the weekend with the risk of a large gap down is very stressful anyway. Let's see what Monday offers.

Note

After hitting my stop loss at 2623 the S&P 500 dropped so strongly that the Friday closing price was almost 1.5% below my stop loss at 2585.89. A very steep decline, which broke both below the 2600 range and also below the 200 day moving average.

At least the S&P 500 closed near the lows of the day. Making next week easier to trade.

Note

A second screenshot of Friday's close, because the price action was historic, because a Dow Theory sell signal is very near.

The following was written by Mark Hulbert before Friday's open:

Quote: "It would take only a small market drop on Friday to trigger something big — a sell signal from the famous Dow Theory.

This is important, for two reasons. The first is that the Dow Theory has been beating the market for an awfully long time. One academic study from the 1990s calculated the Theory’s track record over the prior seven decades, back to when it was created in the early part of the last century; the study found that the Dow theory beat the market by of 4.4 percentage points annualized."

"The second reason to be on your guard for the possibility of a Dow Theory sell signal: The timing system is widely followed, so a sell signal could generate an avalanche of selling. Among the investment newsletters I monitor, for example, no market timing system is more widely followed. Countless individual traders use it to decide when to build up cash."

marketwatch.com/story/a-dow-theory-sell-signal-could-trigger-a-selling-avalanche-2018-03-22

And another article:

"What makes the decline technically very significant is that closing below the Feb. 8 closing low of 23,860.46 completes half of the final step needed to trigger a Dow Theory sell signal, as MarketWatch senior columnist Mark Hulbert explained. The Dow Theory is a market timing tool that has been relevant on Wall Street for a century."

marketwatch.com/story/dow-theory-sell-signal-is-one-step-closer-to-being-triggered-2018-03-23

Note

It's Monday and the S&P 500 is finally bouncing higher. My idea is to go long once the market moves inside the open up gap:

I want to see some more intra-day price action though if and once the S&P 500 drops into this price area before considering the entry price and stop loss.

Trade active

The gap is filled enough to go long with a very small position.

Entry: 2605
Stop loss: 2572
Target: 2705

Risk/Reward: 3

Note

The S&P 500 spot broke yesterday below the low of the previous trading day and thereby below my entry at 2605, but the market didn't take out my stop loss at 2572. And then closed above my long entry from Monday.

Trade closed: stop reached

The S&P 500 spot undercut my stop loss at 2572 and dropped down to 2570.74 on Monday so far.

The risk/reward to go short remains very bad down here, given that the majority of my price forecast models switched to bullish last week, which is why I will try to go long again tomorrow, if I see a intra-day trend change to the upside (expecting a turnaround Tuesday).

ChartArt

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