SPY Reversal

I want to quickly refer you to Jamie's trade in this post. As it is seen on the 5min. chart, price unable to hold the close above $119, moves back to EMA support and consolidates before price breaks down 20 & 50 EMA on high volume. It then forms a flag at the same area where SPY found support in the morning session.

I used the 15 min. for my entry and stayed in the trade on seeing the bull flag on the 5 min.

Inverted Cup & Handle - CLF

CLF has been very strong recently and had a big run. I was eyeing for some weakness. Yesterday I entered a short when it formed NRB's but it did not materialize. Today it was relatively weak compared to the market. It gapped up but then sold away and formed the handle at the morning low. It formed 2 IB. Entered short there. Partialled near PDL and the remaining a little above S2. Partials roughly coincided with 50% and 100% extension of the pattern.

SPY gapped up but was unable to hold PDH. Price moved below PDH which now turned into resistance. Price formed doji on it's 2nd attempt to break this resistance. I took a small position and shorted below the dojis. Price broke down sharply on high volume right after entry. Love it when trades move quickly to the targets.

Early in the morning I had a loser in POT.

SPY - Cradle trade once again

This is yesterday's trade. Another cradle trade. Price broke 20 & 50 EMA the previous afternoon and yesterday it opened at PDL and below the EMA's on 5 min. Tried to rally, found resistance at cradle confluence and formed bearish candles. Shorted there and the consumer confidence report at 10 am brought in nice selling.

This is today's trade. Shorted above PDL. Took partial on the way and covered when price broke above S1.

Jan 28 trades

Within PDR but had a WRB closing very weak followed by a NR green bar. Entered short on the 3rd bar. Covered near $37 whole number.




Price action breaking 20 & 50 EMA on 5 min. chart, then retracing only to find resistance from the EMA's and daily pivot forming a doji. Entered short near that area. Covered at PDL.

Cradle Trade - SPY

Corey of Afraidtotrade.com often mentions about cradle trade on his blog. This is a trend reversal setup and a must to have in your trading arsenal. The name of this setup was coined by Corey. Below is the Cradle definition from his presentation. The same applies for a bullish setup with prices breaking above 20 & 50 EMA.

Setup based on 5 min. chart.

• Uses a 20 and 50 Exponential MA
• Price breaks below 20 & 50 EMA,
  the EMAs Cross “bearishly,” then price “pulls back” to the confluence
• Place Stop above EMA Confluence Zone
• Target a Trend Reversal/Retest of Lows
• Volume increase on break of major EMA's and volume contraction during the pull back to the confluence (Added)
  
  

The Best Cradles…

• Form after a Lengthy Up/Downtrend
• Are Confirmed by Basic Candles (bearish in this case - added)
• Are Preceded by Divergences or
  “Three Push” Patterns

Read about Cradle trade here

Corey: "I'll be more confident if there's a candle pattern such as a doji or an evening star as price finds resistance at the cradle."

SPY looked strong in the morning after the consumer confidence report. Price reached PDH retraced a little and hit PDH again. This time it formed a nice bearish engulfing candle. Price then moves below major EMA's (yellow = 20 EMA, gray = 50 EMA) on high volume. Price then pulls back on low volume at the confluence of the bearish EMA cross (20 EMA moves below 50 EMA) and form a doji. Corey calls this cradle doji. Next candle closes very weak. Entered short there. Price then breaks on high volume reaching the morning lows.

Almost similar setup trade taken by Jamie in Dec. He explained it beautifully how to trade this setup. Notice that in this trade, the entry is above 50 EMA. Below is copy-paste of Jamie's chart and his explanation of the trade.

"A good way to anticipate a reversal is to monitor the strength of the move back to the base of support. Friday's early euphoria on strong jobs data didn't last due to the strength of the $USD and its effect on commodities. Initially price pulls back on lighter volume, but once the 20 EMA gives way, volume on the downside accelerates forming a flag pole into support. Flags form on declining volume and once they break, volume accelerates all the way back down to pre-market levels and culminates in a mini-capitulation."

Burn the setups to memory. The reward-risk ratio is very nice.