Futures are lower on news we will have completely forgotten by 10am. It's lousy early follow-through after a pretty constructive day yesterday. You can see in this 5-day chart that the S&P 500 (^GSPC) probed the same old boring support just under 2000. As usual, just when all seemed lost buyers came charging in and pushed stocks up by almost 1%.
We've got a lot of stuff to talk about today including Google (GOOG) results, Amazon's (AMZN) huge success attracting customers to its Prime service at any price and the Shake Shack IPO (SHAK). Those shares priced at $21 a share, above the expected $17-$19 range, raising $105 million and valuing the burger chain at $745 million. All of that is important and we'll have it all over the Yahoo Finance site all day. Based on my email though and the fact that the S&P pre-market is around 2000 yet again I think we need to have a short conversation about how to use charts.
Here is a 6 month chart of the S&P 500. I've drawn the trading range that has become the new "V Bottom" in terms of predictable patterns. 1. 2. 3. 4. 5 different times this month the market has reversed course within that space. If three makes a trend 5 makes a Trading Commandment.
Everyone has their own special trading sauce when it comes to charts but when it comes to this channel, or really any pattern, I need to make sure we're clear on one thing: never anticipate a breakout or collapse. Trade the market you have, make plans for the one you think is coming.
Don't take this the wrong way but I worry about some folks. I'm concerned that people are getting scared out of longs when the market looks like it's going break down and then scramble back in at the high end. That's normal. It's human nature. It's also really expensive.
As of today stocks are down less than 2% for the month. That's where you'd be if you did nothing, which is generally the best play. But if you gave in to your emotions you could be down over 12% just selling support and buying resistance. Range bound markets are teeming with money eating gators just waiting to eat your returns with fees and fear.
We use the lines to trump emotion. When you're at support you buy because it means you have to the tightest stop-loss. When you're at the high end you sell to lock in profits. If you get that backwards you end up getting a real job. No one wants that.
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