The S&P 500 ETF (SPY) gapped up and closed strong to forge a higher high on Monday. The ETF has been channeling higher since August with a series of higher highs and higher lows. While each higher high affirms the medium-term uptrend, notice that SPY pulled back after recording these higher highs. Each pullback resulted in a higher low to keep the medium-term uptrend in place. Said uptrend remains until this string of higher highs and higher lows is broken.
The Stochastic Oscillator is shown in the bottom indicator window. The red dotted lines show the Stochastic Oscillator crossing below its signal line and then below 80. The red arrows point to the next trading day, which would be the entry. The green dotted lines show crosses above the signal line and then above 20. The green arrows point to the next trading day. There were some whipsaws in August, but some good signals from September to November. Whipsaws and losing trades are all part of the game. The key is to win more on winning trades and lose less on losing trades. At present, the up swing in SPY remains strong as long as the Stochastic Oscillator holds above 80. Notice how the indicator remained above 80 for extended periods in September and October (yellow areas).
On the 30-minute chart, SPY gapped through resistance and closed above 111. Monday's gap becomes the first support zone to watch for signs of trouble. I am elevating key support to 109 and redrawing the trendline. The gap and trendline mark the first support level to watch around 110. The green line marks uptrend support at 109. This trend remains up as long as SPY holds 109 and CCI remains above -100.
A trend in motion stays in motion. This is another way of saying that the trend remains in place until proven otherwise. Despite indecision last week, SPY ultimately held its support zone and the uptrend resumed on Monday. Even though the short-term uptrend is getting overextended after a 7.7% advance in 11 days, it has yet to actually reverse and higher prices are expected until we get a confirmed reversal.
About the author:
Arthur Hill, CMT, is the Chief Technical Strategist at TrendInvestorPro.com. Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed market technician. Arthur has written articles for numerous financial publications including Barrons and Stocks & Commodities Magazine. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from the Cass Business School at City University in London.
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