A lesson in Price Action Trading. What are the dealt bars tell about the move in SP500

A lesson in Price Action Trading. What are the dealt bars tell about the move in SP500

2-YEAR TREASURY NOTES

Back to the last week's commentary where that 1-minute chart put a smile on the face of many of you. Don't be fast to label me as a scalper :) In my opinion, the 1-minute chart is not worth trading but as we will see again this week, it provides some value from time to time.

But before that let's see what to do with the 2YR T-notes. No matter if you believe it or not that the bond market is the “bubble of all bubbles” right here, right now we have a short-term exit signal here. Or you should at least move the stop closer, above Friday's low.

U.S. STOCK MARKET

Speaking of the 1-minute chart here is a screenshot of one of my positions (S&P500) from the past week.

Real trade on S&P500

The position is still open with a small profit. But what it has to do with the 1-minute chart?

Here it is.

S&P500 analysis on 1-minute chart

What you see above is a 1-minute chart of S&P500 E-mini continuous contract from 10th of October 2019. 

After the opening of the daily bar, during the so-called Asian session, we saw a big down move. In only a few minutes, during that usually low volatility period of the day the market dropped 1%. It also fell below the previous day low. On the screenshot above this move is marked with a yellow rectangle.

We can see such moves in other instruments from time to time. And they are usually going in the wrong direction!

S&P500 analysis 10/13/2019

Here the market was able to go up and break the high of the previous day. Exactly when I went long. Price action entries comprising a fake move and an outside bar, are well described into the pieces.

Now before we jump to where to the exit we should think of the current strength of this move.

From a price action perspective we see:

  • Tuesday– a down bar closing almost at its low
  • Wednesday's bar is making a higher short-term low
  • next is an outside bar, clearing the stops, below that higher short-term low
  • Friday's bar is closing in the middle after reaching a temporary distribution area

Such a configuration of different daily bars often appears at the beginning of strong trends. 

Especially when we are at the seasonal and cyclical bottom after which we can expect a strong up move. Also, we are exiting an area where the sentiment indicators showed extreme selling. And last but not least the market's internals remain strong with no signs of significant distribution.

Now that sounds good but have in mind that charts do not move the markets. Price action is showing an uptrend is developing but only the fundament can show a magnitude.

In other words, if we are to reach new all-time highs we need to see more improvement in US-China dispute. Even more important would be a good start of the earnings season and more upward analysts'revisions.

Now, what's next for the S&P500?

Friday's price actions once more confirmed the importance of the 2995 level. Monday should start with a move towards this level. Breaking above should suggest that this up move is far from over. 


Failure to break above that level with a clear distribution close to it will make me close my position.


Now, let's find your missing piece!

Vassil Banov,
Founder of Piece of Trading

Trades mentioned here are either taken or will be taken by the author if the right conditions appear. They are NOT recommendations nor any of this constitute investment advice. Please read the Risk Disclaimer

Seasonal indicators courtesy of Larry Williams, ireallytrade.com. Charts made with TradeStation®. tradestation.com

TAGS: S&P500, SPY, SPX, Price Action Trading, Treasury Notes, Stock Market, Accumulation, Seasonality

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