I’ve got alerts set on this at 135 upside, 126.50 on the down side. A lot of people have been trying to catch the bounce on this one, but it just might take one more trip down.
Here was my thinking going into today’s trade in SPY:
Short Term Trading Tool +57.84 (overbought)
SPY / QQQ Approaching Moving Averages (resistance)
ISM Mfg Index quickly sold off all gains (weak)
Below VWAP (bearish)
I was now short biased. Next step: identify a low risk entry.
The chart above shows 3 times where daily VWAP was tested and rejected (bearish) , each one offering a great low risk short entry. My entry was the first test and failure of VWAP marked by the first oval.
The problem: my stop.
There are two kinds of stops that I use, one based strictly on price and another based on levels and the tape. A stop based on price means if your stop is 122.50 and it prints 122.50 , then you hit out, no questions. A stock based on a level like 122.50 or VWAP, means that if I am short, then I will exit this trade if the SPY trades above 122.50 and HOLDS above this level.
As you can see from the chart of today, SPY pierced through this level failing every time, never HOLDING above and recapturing VWAP.
Unfortunately, I was shaken out on the second re-test when the SPY printed 122.56, and then had class at 12:50.
Don’t do what I did, specify the appropriate stop and stick to it. Trust your trades.