Monitoring the SPX Rally

October 2, 2020 12:25 PM
Monitoring the SPX Rally

[node:field_image:alt]

I trade for myself and my members. The people who use the service know what to expect, but from new members I do get some questions such as how often I trade and what kind of monthly returns do I expect. Normal questions to ask, but they’re also the wrong questions.

Many of you have been conditioned to think this way just as some of you may think that indicators are necessary for trading. Feeling the necessity to trade isn’t good for your performance, period.  Instead of calling me a professional trader, I could just as easily be called a professional waiter.  I go through what may seem like long periods of time of doing nothing, but then may place more trades in 2 weeks than I did the prior month. My customers benefit from this patience but they have to get over the idea that something has to always be “happening” or that you need X amount per day/week/month, etc. The performance will take care of itself if you do things the right way, which leads to the current form of stasis in the S&P 500 index (SPX).

Over the years, I have grown less comfortable with relying on wave patterns. They’re just too subjective and frankly unreliable. Still, there are times when they provide insight into a signaling mechanism worth paying attention to. No, I’m not saying someone is manipulating the market to form a wave pattern but it has extra weight when a pattern forms in a specific position. That’s where we are with the SPX. Earlier this week I mentioned in my blog that the rally off the low appeared to be an impulse pattern in the making, and that’s what we got.

Graphical user interface, chart

Description automatically generated

Source: TradingView

So not only did we break the declining trend line, we also completed an impulse from 3210.  Then, overnight we got the news about President Trump contracting Covid-19. From there, we can plot the Fibonacci support levels and make decisions moving forward. 

Chart

Description automatically generated

Source: TradingView

On one hand we have the bullish backdrop of the trend line break and impulse pattern, but on the other, we have the fact that the SPX hasn’t yet broken resistance on the larger time frame. This puts bulls in a predicament because any perceived bullish scenario might actually be the end of the retracement off the low at 3210. 

Personally, I prefer not to make long trades in this scenario. My style is a trap trader. I’m looking to capitalize on mistakes made by reversal traders who get caught wrong-footed.  So I’m reminded that cash is a position as I find myself in no-man’s land. And that’s fine.

Sign up for my free blog or to learn more about my options service CycleETF.

About the Author

Chris Wilson owns and operates Wilson Speculations, a blog and paid options advisory that specializes in swing trades on the S&P 500, the E-mini futures contract as well as the cash index, and gold.