The Reversal You Were Looking For
The gap filled for SPY, setting up for a hot start to March!
A simple and sometimes overlooked trading strategy is to get in after a gap has been filled.
Why would you do this?
Many times following the gap fill you will see the candles reverse. If the candles were dropping into the gap, like we saw with SPY, they will often reverse and start heading higher following the fill.
Take a look at this playing out to near perfection for SPY, which is good news for our current swing trades. They are all long.
More on that later.
Here’s the reversal we saw on Friday for SPY, great volume on this move too. You like to see volume like this, it adds conviction.
The previous gap fill saw SPY run from 575 to 613. The current gap fill dropped to 582, setting up a potential run at 620.
This is good news for the bulls.
We have the potential for a higher low, strong volume on the reversal and on a Friday of all days (usually lighter volume), RSI can make a run at a new high, and the chart for SPY can follow.
Taking a look at QQQ paints a slightly different picture. Not quite as optimistic.
The gap never really filled for QQQ but we are testing the January lows which could be enough to get things moving back higher.
There is a chance the gap fills first, making an entry here a little riskier than if you were to wait for the candles to get back above the 5-day simple moving average (SMA).
It is a basic but tested rule to follow. If you want to trade for upside, wait for candles to close above the 5-day SMA multiple times first. Establish a near term trend.
If QQQ can get back above the 5-day SMA, I like where the markets overall will be headed. If it can get back above 515, I will like it even more.
The real target is 540 for QQQ. Then we see how much more the bulls have in them to push to new highs again. I’m all for it!
Another chart to consider is SMH. Or perhaps its a chart to no longer consider.
Semiconductors are no longer leading markets. Here’s the proof.
After a period of consolidation that gave multiple opportunities to break out, the candles just broke down.
This could be a shake out but the strength we saw previously in this sector has definitely faded. There are trades to be made, but don’t look for leadership any time soon.
Financials are the surprisingly interesting sector to watch. I think this is where you can look for leadership. If financials fail, so will the rest of the market.
The chart for XLF looks strong to me!
This sector could continue to consolidate, but it looks more like strength to me.
There was a decent pullback of -8% after the massive run through all of 2024. Since then the candles have recovered and recently tightened up at the highs.
A breakout or breakdown is in the near future. It is worth keeping a close watch.
Open Trades & Trade Ideas
We are well positioned for an upside move and have stops in place to protect against the downside risk.
It is that simple. No adjustments to stops. No last minute changes to risk management. The plans are formulated and we stick to them.
This past week the portfolio was loaded up with calls for RKT, WDAY, TWLO, PLTR, and CCL. Profits were already taken for RKT with plenty of time until the June expiration of those options.
If you’ve already upgraded, check the private chat for profit targets outlined PLTR and CCL. Tomorrow’s newsletter will have the levels for WDAY, TWLO, and RKT.
Plus, new trade ideas!
One last note. I am officially back at it which means the podcast is ready to rip!
I am going to keep the videos fairly short. Sometimes just five minutes, sometimes fifteen, and occasionally a full thirty minute session.
Audio will always be an option as well.
Let me know what you think and more importantly, have a great week of trading ahead!
-Nate
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This service is for general informational and educational purposes only and is not intended to constitute legal, tax, accounting or investment advice. These are my opinions and observations only. I am not a financial advisor.