Connecting the Dots on Recent SPY Action

On August 6th, we talked about the first signal to take caution when the SPY broke below $170.35 after putting in a new high. For those trading on an intermediate time frame, this was the first spot to make some adjustments.

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The market then got some downside follow-through to retest the upper level support of $168.20 and the 21-day. I mentioned that several sectors, like the banks and the homebuilders, were well below their 21-day moving averages on that day. This was another sign to be more cautious for intermediate traders like me, as I switched back to a short-term tactical approach.

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On August 8th, we mentioned about there were different ways to paint this picture. Some say a “Summer Range”, some say an “Ascending Channel”, some say “Potential Head and Shoulders pattern” in the making. We highlighted those patterns on our chart, as the bears did contain the bounce at $170 area.

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Yesterday we talked about the market was also forming an upper-level wedge pattern, which is a pattern of indecision that takes place after a big move that consolidates price action before new motion.

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Today we opened below the neckline of the Head and Shoulders pattern. The market does feel a bit heavy. The 75% of the measured move of this Head and Shoulders pattern has been met. Next important support is the 50-day at around $165.70 which could be a better buyable spot if we get there.

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Disclosure: Scott Redler is long GLD, SPY puts, IBM puts

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About Scott Redler 367 Articles

Scott Redler is the Chief Strategic Officer of T3 Live. He develops all trading strategies for the service and acts as the face of T3 Live. Mr. Redler focuses on thorough preparation and discipline as a trader.

Mr. Redler has been trading equities for more than 10 years and has more recently received widespread recognition from the financial community for his insightful, pragmatic approach. He began his career as a broker and venture capitalist where he was able to facilitate relationships that led him into trading. Beginning his trading career at Broadway Trading in 1999, Mr. Redler moved on with Marc Sperling to Sperling Enterprises, LLC after establishing himself as one of the best young traders in the firm. As a manager at Sperling Enterprises, continued to trade actively while working closely with all traders in the firm to dramatically increase performance.

Mr. Redler has participated in more than 30 triathlons and one IronMan, exhibiting a work ethic that also defines his trading. His vast knowledge and meticulous attention to detail has led to regular appearances on CNBC, Fox Business, Bloomberg, and he is a regular contributor to Minyanville and Forbes’ Intelligent Investing blog. He has been quoted in the Wall Street Journal and Investor's Business Daily, among other publications.

Scott received a B.B.A. in Marketing/Finance from the State University of New York at Albany, graduating Magna Cum Laude from Albany's School of Business.

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