- The SPY has grown 358% since 2009. Its price is near the upper wall of the monthly channel.
- The SPY fell 2.7% last week. Its price touches the lower wall of the daily channel.
- How to trade now?
Please remember, our suggestions have been intended for ordinary investors, not for the professionals or day traders.
First of all, please exam if the long-term monthly channel has been destroyed?
No, when we look at the monthly channel from 2009 till now, it is still on track.
However, the price is near the upper wall, and at the channel-sell-point.
So, from the long-term monthly channel
- When you have SPY, it is time to take some profit.
- If you are empty handed, don’t buy.
- If you think the world is going to crash, don’t short yet.
Let’s use Earning Channel to help us setting the automatic trading alerts and to manage the position.
When we looked even closer, we noticed that its daily channel is touching the lower wall. So, now it is the critical time. Is it going up or down? Let’s use Earning Channel to follow channel trading.
Similar to the effect of the three-screen mechanism used by Dr. Elder in “Coming to my trading room”, we use monthly, weekly, and daily channel to determine the conduct of the transaction.
The monthly channel is the guideline, weekly channel as the reference, and daily channel for the action.
We exercise making a trading plan for SPY using Earning Channel in the following. If you are not familiar with channel trading please refer to “The Basics of Channel Trading”
First select SPY in the watch-lists and put it in the action plan.
You can put it in the long position or the short position, or in both positions. You put a stock in both the long and short position when you think it is approaching a top or a bottom. You can then set the channel trading lines for the alerts.
Next, we chose the daily channel to do the setting.
For the setting, we chose the longest daily channel till now. The purpose of choosing the longest channel is to check the overshoots and undershoots in this period of time, and to use them as the guidelines for setting the channel break-up line and the break-down line.
After we have chosen the boundary line, we can enlarge the graph to make it easier to adjust the channel lines. When the price touches the channel lines, the system will issue a warning. According to channel trading, we can do the following.
- In case there is a surge, however unreasonable, you should take profits at the channel break-up line. The reference price today is 245.51.
- You should sell at the channel sell point at around 239.
- If you want to buy, you can buy at the channel-buy-point (when the price touches the channel lower wall and bounced back).
However, we do not recommend buying at this point. Since the price is now near the monthly channel’s upper wall.
- When the price goes below the channel break-down line at 230.86, one should consider clearing the position. Even if the long-term monthly channel is not broken, one should at least greatly reduce the long position when a mid-term daily up-channel is broken.
To prevent from being wash out, we could use the weekly channel to reconfirm the break-down line. We moved the break-down line to be near the previous undershoots. It gave us 224.12 as the reference price for clearing up the long position.
In summary for clearing, when the price reaches the break-down lines in
- Day channel ~ 230.86. At 230, if you still don’t want to Clean the long position, please keep at most 1/4 of your allocation.
- Week channel ~ 224.12. At 224, if you still don’t want to Clean the long position, please keep at most 1/10 of your allocation
- Month channel ~ 204.44. At 204, must clear the long position. In addition, be ready to establish short positions.
Above analysis are purely based on channels, for your reference only. The author does not buy or short SPY.
So, if we follow the weekly chart for channel trading:
- Take profit at the channel break-up: 245.42. (daily at 245.51)
- Sell some at 239.40. (daily at 239.89)
- Buy back some at 234.08, when bouncing back. (Daily at 235.54). However, we do not recommend retail investors to buy. Because it is still relatively high, unless you fully comply with the channel trading rules to perform band transactions.
- Clear position at 224.12. (Daily at 230.86). At least substantially reduce the long position.
Please notice that all of the pricing are the reference prices at 3/26, they will changes slightly along the movement of the channels. You can also adjust all of the lines with your finger. Upon reaching the buy/sell points, the system will sound the alert. You can also use auto-trading in the action plan for simulation and to track your own record.
Since SPY has grown for a long time, one should follow the monthly channel as the guideline for buying and clearing. We’ll leave this exercise to you. Just download Earning Channel and play with it. We believe you will soon come to your own conclusion and develop your own techniques.
Please also reference “Topping Pattern and Channel Trading”.
Hope this discussion is useful to you.
Good luck on your investment.
The Earning Channel software, as well as the articles, tutorials and suggestions in the website and social media, are provided as tools and references to help users develop their own market analyses and make their own investment decisions. Users are ultimately responsible for the way in which they use this information to invest in the stock market. Nothing associated with the Earning Channel or the information presented in articles and tutorials should be interpreted as direct advice on buying or selling of securities.