Monday, October 12, 2009

Who Really Knows, But...

Here's a picture of the SPY, broken down to show 2 different time frames. The top part or "timeframe", is a 20-year monthly chart...and the one on the bottom is a 5-year, daily chart. So looking back 20 years we can see the fat blue line I drew was acting as support until it broke down and through it in October of 2008. If the SPY starts to trade back up to the blue line (which it has), the fat blue line should act as resistance and make it difficult to trade up & over...

The skinnier yellow line that's drawn has been acting as resistance since October of 2007. So, every time the SPY starts to trade around the yellow line, again, one would expect it to be difficult for it to move & trade above it...

Well both lines are intersecting and it 'puts' (no pun intended) things in your favor to take a trade to the downside. Again, your risk to reward is in your favor by going "short" (or trading to the down side). The reason why your risk is reduced is because if you're wrong, and the SPY continues to trade higher from here, your 'stop loss' (or where you should exit the trade) should be right above the yellow and blue lines and that would minimize your loss from being wrong.

I believe we go lower from here...but that's just my opinion.

Happy Trading!!

-Matt J

BTW, the SPY is roughly 1/10th the size of the S&P500 index. And for those of you who don't already know, the S&P500 index is the bellwether for the American economy........and for those of you who don't know what a'bellwether' is, look it up; Wikipedia it or something.

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