I wanted to do an EDUCATIONAL post on how and why SPY and QQQ rallied so hard on Thursday and why i was so convinced the market would rally hard despite the market's initial very big gap down open on Thursday morning.
As many of you who were following my tweets on the @AOTtrades private feed and also on @TraderStewie public feed, i was very bullish on that day and I'm going to walk you thru it, STEP BY STEP....
Ok, so coming into Thursday morning, we were already long NFLX and FB.... so coming into Thursday's open, the market was gapping down big at the open due to some new "Tariffs news" blah blah blah....... Remember, the news is almost always irrelevant, it's the REACTION TO THE NEWS, that interests me most!
***Coming into the day, the Dow Jones was going to open down about 175 points, SPX was opening down 20 points***
Ahead of the open, i took out my "SPY Road Map" chart(see below) to see where we were going to open....
I quickly noticed that SPY was opening down near the $279 area which has been strong support on numerous recent tests....
However, what made today's weak open so interesting so that not, only was it opening at exactly the $279 support area but also, that the RSI and MACD indicators were HIGHER than the previous time SPY tested the $279 area... since RSI and MACD were higher than the previous time, that right away told me, they were making a HIGHER LOW hence telling me, that today's down open is WEAK and UNSUSTAINABLE therefore odds of an upside reversal were very high.....
I actually tweeted this out shortly after the open:
"Today is a good test for the $SPY, $QQQ... as they RETEST support....
Note...
..on this RETEST, we need to watch how the MACD and RSI behave here...
if RSI and MACD continue to form a HIGHER LOW as $SPY, $QQQ retests support, odds increase for a strong bounce phase soon."
A few minutes after the open, SPY, QQQ started to bounce, they wasted no time... so that increased my confidence that a big reversal and rally day was brewing here....
Note the mini HAMMER candle in the above SPY chart shortly after the gap down open and right off $279 support.... the RSI and MACD higher lows were very visible at thus point and firming up even more aggressively...
A few minutes after the open... i started to notice many of the big stocks started to reverse to green, despite the overall market still well in the RED.... Stocks like FB, MSFT, GOOGL, NFLX were starting to go from RED to GREEN... that's when my confidence of a reversal went from 75% to 99% !!
... and that's when I tweeted this out ...
"$SPY bouncing here as RSI and MACD are carving out a HIGHER LOW ....
This is setting up for a wicked bounce...."
....At this point, SPY was pretty much almost FLAT(see chart below).... while the clear cut leader was QQQ....
Meanwhile, i noticed that "trader sentiment" on twitter was still surprisingly bearish or skeptical at best(not many bulls), which only further increased my confidence that this rally day was only getting started and that's when i tweeted this out....
"$SPY ... up a cool +$1.5 since this posting tweet/chart and i suspect, this could be just starting!"
Note the STRAIGHT UP move in QQQ after the initial gap down open....
....Fast Forward a few hours later....
Our NFLX position was up a good +$8 points since our entry and FB was up $6 since our entry ....
I tweeted out this:
"How bout that $SPY chart, folks?!
Up almost +$3 since posting this SPY chart at the open!
Learn to spot those RSI + MACD divergences!
Especially on indices, this pattern is as strong a buy signal as you ever gonna get!"
This is 100% true, LEARN TO SPOT these RSI and MACD divergences on the indices!!
RSI and MACD bullish divergences are as strong a "BUY signal" as you're ever gonna get, especially when you're analyzing the indices....
I hope this educational post will help you spot these divergences going forward!!
Happy Trading!
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