Looking Ahead to Tuesday's Open

After heavy selling last week and a day of consolidation today, we find ourselves at some key support on the SPY. I thought we would get more of a bounce to the upside today and though we got a small retracement, the SPY didn't give any indication to suggest there is any strength to a bullish position. If anything we are looking to be in a bit of a bear flag pattern heading into Tuesday's Open. This would suggest we will move lower tomorrow.

How to play it?

Well, lets watch how the market opens tomorrow. If the SPY opens below or trades below $109 watch for the next major support level which is $108.79. If SPY can confirm a move below $108.79, I would look for an opportunity to short the market. Watch early morning trading, If SPY touches $108.79 but can't confirm a move below it, that would be a great spot to go long the market. $108.79 is a very important level, so play it accordingly.

SPY Daily Chart Showing Bear Flag Pattern and Potential Price Targets


TECHNICALS
The SPY opened at a retracement of 50% from Friday's high to Friday's low. This was a great short opportunity if you took it. Late in the day, SPY threatened with a false breakout above the 50% retrace, but closed the day lower. That type of a move is pretty bearish, and I expect that we will trade down lower to open the day tomorrow. The question is, how much lower can we go? Breaking below $109-$108.79 will be very significant. The last time we were below $109 was November of last year and it was tested many times as the SPY traded range-bound throughout December. $108.79 marks both an up-trend support line dating back to the August 2009 lows as well as the 100 day moving average. It should be strong support.

Some levels (or potential trade targets) to be aware of:

If SPY confirms a Move Below $109 or $108.79
$108.38
$107.91
$107.51
$107.16
$106.73

If SPY does not break down below $109 or $108.79
$110.40
$111.29
$111.60
$112.27
$112.97

Last Week Great for the Bears... Quick Reminder... Check yourself if you are Felling Over Confident

First I just want to say there was a lot of opportunity for profits last week. If you were able to cash in on some big trades, good for you. At the same time though, just make sure you check your ego. If you begin to have any notions that you are god's gift to the trading world, I would suggest you drop that arrogance before you lose all the profits you just made. You still need to prepare, you need to continue to have a trading plan before every day that you trade. If you have a little success, don't increase the size of your positions in a greedy attempt to reap greater profits. Don't increase your position size until you have had continued success in every type of trading market (trending bullish, trending bearish, range-bound, volatile and slow moving. Remain patient and don't chase trades. I only post this message as a reminder, because we often forget these simple rules.