Even though post-open price action has been indecisive the last three days, the S&P 500 ETF (SPY) managed to move higher and close at its highest closing level for 2009. This also means that SPY finally closed above the closing highs from the consolidation. Technically, we have a range breakout that is bullish. However, I have my doubts on its tradability because the risk-reward ratio is not that great. Breakouts can be difficult to trade because further strength is required for a success. SPY is already 3 points off its lows and my upside target for this breakout is 115, which is another 3 points. At current prices, SPY is trading half way between support and the breakout target. In my opinion, the time for longs was either at support or on the first intraday breakout at 110.5. With SPY already at 112 and a Fed meeting starting today, new positions are at risk of a whipsaw or loss. Before entering a trade one must establish a suitable entry price, a stop-loss for risk and an exit target for profit potential. Entry and stop-loss are the only two things we can fully control. A profit target is a predication that is out of our control.
On the 60-minute chart, SPY held the breakout at 110.5 and moved into the resistance zone around 11.50-112. As noted above, yesterday's close was the highest closing level of the year. Also notice that SPY gapped up again and again held the gap. Although buying pressure after these gaps does not seem that strong, there is clearly less selling pressure than buying pressure. I am raising short-term support to 110.4. Failure to hold yesterday's gap and the flag low would be short-term bearish.
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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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