Breaking Down Recent Action As Sellers Regain Control

It’s been a messy past 3 trading sessions which all began last Friday when we saw the S&P500 ($SPY) drop nearly -2.5% on that one day alone.

spy_9_9

Since that change of character day, we’ve seen volatility and ranges expand greatly and volume pour back into the markets.

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The immediate snap back bounce on Monday was impressive, but beyond retracing some of Friday’s carnage, there was no recovery back into our old range or breach back above prior resistance levels.

Looking at where we stand after Tuesday’s session, sellers once again demonstrated they are still clearly in control, and notice we now have two consecutive unfilled bearish open gaps in the SPY ETF.

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On the slightly constructive side, we couldn’t quite take out the lows from Monday, and we did manage to close right where we finished the week last Friday.

Heading into Wednesday, bears have the momentum, but we’ll need to see pressure under SPY 213 stick in order to keep that downtrend as strong as possible.

Keep in mind this 212.50 area coincides with a re-test of significant prior resistance from our year and a half long trading range that we broke out of earlier this July.

Bottom Line: volatility appears to be here to stay for the near-term. Sellers have broken support, left some open gaps in their tracks, and it’s time to recognize the shift if you haven’t already, wait for the dust to settle, and adjust your process accordingly.

In the meantime, look for stocks holding up well near highs, withstanding the bulk of the selling pressure. These include names like: $TWLO $FB $ATVI $SHOP etc.

If you do need help navigating this market, we’ve done a great job so far at sidestepping and taking advantage of this volatility and if you’d like to receive our trade alerts and analysis, you can read more about our process here.

We just closed out our short bond trade today for some nice gains, expressed via $TMV which is the $TLT 3x bear ETF.

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Good luck trading out there.

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Evan Medeiros

Evan is the founder of the Trade Risk. With 20+ years of coding experience and a B.S. in computer science, Evan brings a systematic discipline to investing in the stock market.

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2 Comments

  1. Brent on 11:12 pm September 13, 2016 at 11:12 pm

    Good stuff Evan. Just stopping by to say hello. Hope west coast is treating you well.

    • Evan on 11:36 pm September 13, 2016 at 11:36 pm

      Nice to hear from you Brent. Things are great over here, no complaints. We should catch up, I’ll ping you.

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