March 4th, 2017 05:03
Ms. $SPY is taking a little breather as she attempts to fill the gap created on Wednesday when she reached another record breaking all time high. Markets were rallied by the president’s address to Congress on Tuesday night and are taking this opportunity to take a much needed pause and let the 8 EMA (exponential moving average) catch up to price. This mild and greatly needed little pull back is putting a little bull flag on the SPY chart and allows the index to continue on it’s trend higher.
If you’ve read my market blogs before, you will know that I put a lot of faith in the 8 EMA. I plot the average in bright red on my charts and use it as my trigger line. Price generally rides the 8 EMA. When price is above this level, it tends to continue higher and when it drops below the level, it tends to continue lower. When I see price get too far away from the 8 EMA, I am confident it will soon come back to it. When looking at the current SPY chart below, look at the red line and take note that everytime price pulls away from that line on the chart, it isn’t long before it comes back to it to consolidate the move, as it is doing now.
Also, even though price has dipped back into the gap it made on Wednesday, it is doing so on lower volume. Note in the chart below how much shorter the red bars are from yesterday and today compared to Wednesday’s green bar. This helps give me confidence that this pull back is nothing more than a bit of healthy digestion of the big move.
The banking sector continues to do cartwheels with talk of deregulation and higher interest rates. even though we still don’t have clarity on fiscal policy. Nonetheless, the charts are telling us that investors are rather positive when it comes to financials.
Healthcare is another sector that has been on a tear ever since dipping on Mr. Trump’s comments regarding drug prices earlier this year. We will probably know more about the changes coming to the affordable care act in the near future, but we can certainly discern what investors are thinking in this regard. If the charts in this sector are any indication, market makers are expecting drug and healthcare companies to do quite well in the future of this administration.
Basically what I am saying here is that bulls are still very much in charge.
Here is the SPY chart.
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I hope everyone enjoys the weekend and gets out for some fresh air. I have a few weekends left of skiing with my family as the winter season starts winding down. Funny how it always goes by so quickly. Good trading everyone!
The author, Danielle Spandau is a seasoned trader/investor and educator also known as The Trading Wife.
All information and/or opinions contained herein are impersonal, for informational purposes only, and do not constitute a solicitation or offer to sell securities or investment advisory services. The views and opinions expressed in this article are those only of the author(s) and do not necessarily reflect the opinions of Alpaca. If you are considering making an investment, you should consult with an investment professional.