This Week's High Probability Trade
March 8, 2011
SAN DIEGO (ETFguide.com) - The S&P has been
chopping back and forth violently, catching many off guard and
whipsawing profits away. But perhaps there's a pattern to the
madness that allows for some profits.
Since its February 18 high at 1,344, the S&P has chopped
back and forth with daily candles ranging from 10 to 30 points.
Many sharp intraday reversals and false breakouts have made for a
treacherous trading environment.
From Irrational to Obvious
However, what looks irrational at first sight makes more sense
at a closer second look. The last ten days of trading have produced
a defined trading range.
This trading range was outlined last week by the Technical
Forecast, a feature of the ETF Profit Strategy Newsletter that
focuses primarily on the technical picture. The February 28
Technical Forecast highlighted the importance of the 1,325 and
1,333 levels (both Fibonacci retracement resistances) and the
50-day moving average at 1,296.
Within this defined range, the recommendation was to buy the
dips and sell the rallies. Over the past couple of sessions, the
S&P has tested the upper and lower end twice without breaking
out. The range and the strategy remain intact.
Sunday night's Technical Forecast referred to the Commitment of
Traders report, which shows no bias for the S&P 500. For that
reason the trading range is likely to continue for this week.
Additional support can be found at 1,303, which marked the high
of the September 2008 monthly red candle that resulted in a
protracted sell off.
It is interesting to note that the back and forth gyrations
might be forming a triangle formation. A perhaps similar triangle
(an ascending triangle) was formed in October 2010. On October 3
(at S&P 1,140), the TF stated regarding the forming
'The S&P has formed an ascending triangle over the past week
or two. Structures like this tend to be followed by a breakout to
the upside. A measured target for a triangle breakout would be
Of course, today we know that other forces pushed the S&P
(SNP: ^GSPC) along with the Dow Jones (DJI: ^DJI), Nasdaq (Nasdaq:
^IXIC), Russell 2000 and most other indexes even higher, but this
started with the triangle. Depending on their constellation,
triangles can conclude with a spike to the up or downside.
A comprehensive outlook for the month ahead is available in
. It includes seasonal patterns, triangle projections and alternate
support/resistance levels once the market breaks out of its current
There are plenty of ways to trade the S&P 500. Below are
some options listed by long/short and leverage.
S&P 500 SPDR (NYSEArca: SPY)
Short S&P 500 ProShares (NYSEArca: SH)
Ultra S&P 500 ProShares (NYSEArca: SSO)
Rydex 2x S&P 500 (NYSEArca: RSU)
UltraShort S&P 500 ProShares (NYSEArca: SDS)
Rydex Inverse S&P 500 (NYSEArca: RSW)
UltraPro Short S&P 500 ProShares (NYSEArca: SPXU)
Direxion Daily Large Cap Bear 3x Shares (NYSEArca: BGZ) - linked to
UltraPro S&P 500 ProShares (NYSEArca: BGY)
Direxion Large Cap Bull 3x Shares (NYSEArca: BGU) - linked to