OK, I’m a stock nerd – I enjoyed charting the S&P 500 ($INX) today. This is a six month chart of daily price action. I might have gone line crazy. That’s why I removed the moving averages. I had enough lines to tell this story.
The top line is the longer term trend line of lower highs. It’s currently around 1450, but I doubt anyone thinks it’ll come into play any time soon. The other longer trend line shows the angle of lower lows. It came into play a couple of weeks ago and I’m hoping it doesn’t come back into play soon.
The remaining five lines are where it gets really interesting.
- The horizontal lines show the potential sideways channel the $INX could trade between for a while as the bulls and bears fight it out. The 1400-ish line is the low from November, a speed bump in the first half of January and finally a ceiling a week ago.
- The lower horizontal line, just above 1300, has shown an area of support. It broke for a couple of days intraday, but didn’t close below it.
- Point B is where our current triangle started. It is the beginning of both the start of the lower highs and lower lows. The line of lower lows took the S&P 500 directly down to our turning point in January.
- The upper line starting in point B heads to a collision course with the shortest trend that started in point C.
- The last line comes from point C and might even be too short to call it a trend yet. I trace it all the way out to point A where we get to see which one wins.
Point A could be moot if the trend breaks before then. I think the 1300 and 1400 horizontal lines could prove more important. I also wouldn’t be shocked to see a retest of the low seen in point C, but repeat that we didn’t close down there during that dip and that’s good to remember if/when we head back down there. It might be a great place to take advantage of others panicing and possibly sell more naked puts assuming the VIX spikes again or to buy calls if it doesn’t. The same holds true for the 1400 line. Once we get back up there, I’ll be thinking of selling more uncovered calls because we are likely to see another pull back at least one more time.
Since you are charting the indexes often, why not trade options on the them? There’s a large demand for index puts and the pricing is pretty good.
Mainly, I don’t trade options on them is that they are too big for my portfolio. I could use an ETF, but like my odds better with specific stocks rather than a collection of a bunch. I like to chart them for the sake of getting a better picture of where the overall market is.