Trade Plan: Week of March 7th

I am an amateur like many others out there, and as such I do quite a bit of research utilizing the information put out for free by pro’s. I still do my own analysis and form my own opinions, but it’s good to try to understand the various perspectives out there which helps keep me from forming too strong of an opinion.

I really enjoy reading the stuff Dana Lyons puts out on Twitter (@JLyonsFundMgmt). This weekend he has posted several charts showing that multiple markets are at key retests of long term broken trendlines, or are at or near prior support/resistance. It will be interesting to see how this plays out in the coming days and weeks.

The SPX is at prior support resistance, and by many measures is stretched. That is not to say it will not continue to run higher, but in the short term I am positioned for a pullback.

Last Friday I entered $ES short via a sold 2000 Mar11th call @14.50. This gives me a breakeven of 2014.5 on March 11th. Should price go against me I will be quick to close the position. As I’ve mentioned before, the max loss I’m willing to take is 100% of the premium recieved (14.5 points, $725). I should also mention that this amount is less than 0.5% of my trading capital.

If I close the short position for a loss, I will continue to position for a short term pullback this week. If we get a pullback, I will look to re-enter long, possibly trying between 1970-1980 if we get there. If 1970 fails, I will wait for a show of strength to re-enter long above 1970.

I will use options on the short side and initially on the long side, but may switch to futures on the long side if we get a nice bounce after an initial pullback.

On the weekly chart below it is clear that compared to recent large upmoves we could certainly continue the march upwards in price and in duration. It is also clear we are stretched and consolidation here or a pullback this week would not be a surprise.

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On the daily chart below going back to March ’15, we have a band of resistance (~2005-2015yellow horizontal lines) which could slow or stop the advance in the near term. Also, we are at the upper end of a rising wedge.

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On the hourly chart below the upper trendline of the channel was pierced last week and price has not retested the upper trendline. First target on a pullback is a retest of the upper trendine(~1980), and then support near 1970.

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Have a great week!

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