At 7:30 A.M., the ES has become a fresh buy per the 60min trading strategy. This means that over night, the ES rose high enough and stayed up there long enough for the 13EMA to cross up through the 34EMA. The ES is currently trading up 2pts at 1317.50 and in order for this buy/hold signal to remain valid the ES must stay above the 1314 area from here on out. If the ES can do this, then this will doubtless cause the $SPX/SPY to also have a fresh ‘buy’ signal per the 60min trading strategy early in today’s session.
(12:45P.M…Edit/Clarification: The 60min trading strategy is based on three things, the RSI, a trend line, and the 13/34EMA’s. Since we are looking at a potential new ‘buy’ signal here, I just wanted to clarify how the strategy would work in this case.
1.) First, the RSI on the 60min chart has to drop below 30. This indicates heavy and continued selling over a period of several hours or several days. Once most of the selling is completed, then buyers will often step in, whether that’s machines or people, and the stock in question will begin to rise.
2.) The next part of the buy signal comes when the stock in question has climbed enough to push above a falling trend line. In the case of SPY, that happened today at the open.
3.) The third part or confirmation of a new buy signal comes when the stock in question has climbed above the 13 & 34 EMA’s and has stayed up there long enough to allow the 13EMA to cross up through the 34EMA. As of the time of this post, this has not yet happened on SPY but it could happen before the close.
So that is just a refresher on this strategy which repeats over and over again in the markets. My concern with the action now, at about 12:45pm, is that what we’re seeing is merely a pump based on the meetings in Europe that are set to take place Thursday and Friday and similar to the pre-Fed run-up, this could all come back in your face at light speed.)
On the 60min SPY chart below I’ve traced out what appears to be another Bear Flag formation. Confirmation would come with a break down through the bottom of the pattern, as happened on Monday. For the moment this is only a potential Bear Flag and has to be seen as a fresh rising price channel until proven other wise. Back on June 6th, the same kind of pattern formed but instead of being a Bear Flag it morphed into a rising price channel and produced a nice rally. I am doubtful the same thing will happen this time, but you have to go with the charts and the charts will let us know in due time whether or not this is a Bull Flag or a rising price channel.
Caution remains the word of the day. Small, quick trades either way have the potential for gains in a market with this kind of volatility. Large trades have the potential to wipe you out in minutes. If you are a brazen froth-mouthed bull or a brazen froth-mouthed bear, you’ll never make it in a dangerous market like the one we’re in now because only the paranoid survive, baby.