As the morning kicks off we notice many mixed emotions in the market. Early morning Pre-Market reports shows stocks pushing to new highs an to higher levels in the morning. Various news articles can be seen in various publication website signaling a strong morning to start the day.
Many investors stood by to see the indices push up and in contrary see the market open up to see numbers fall across the board. Just to then finally see the market settle out with an overall strong bias.
How is it that the news can signal a positive morning for us to experience a major sell off in the morning?
How can we best prepare ourselves for major moves that occur in the overall market?
How do we determine if the move is a quick spike or a push in the current trends direction?
Let’s break down some of the factors that play a huge part during the opening bell numbers.
For a look back at what Aviation Stocks are being traded this week and how this market has been affecting airlines click the link to see previous post where I cover Spirit Airlines (SAVE), JetBlue Airlines (JBLU) and American Airways (AAL).
- National Airlines Providing Emergency Relief Supplies
- Stimulus Package Providing Aid to Airlines
- Airline Stocks Spike Up On the Opening Bell
S&P 500 Futures
Part of my morning routine involves taking a look at the S&P Futures to see how they are trading. I do not personally directly trade the futures for our market although I do use them to gain better insight on the overall sentiment of the current market.
Futures are a financial obligation contract between the buyer to purchase and asset and the seller to sell a specific asset as a defined price. In other words the futures contracts is a chart not based on the current market data but on future market data. This data is reflected by many factors not just in the us but also internationally.
For those that live on the East coast of the United States our stock market opens at 9:30am. We must keep in mind that we are not the only country in the world with access to trade the financial markets. Japan and Australia open their market at around 9;30PM the night before and London opens their market around 3:30 am.
This means that before you and I even down to start our trading day there has already been over 12 hours of market data that has been processed. This movement can happen from overseas banks releasing new policies and statements that can affect our own market.
Overnight movement can also include companies that do business overseas announcing changes in their company that can affect the stock price. As we prepare our morning to dive into the market to start preparing profitable trade set ups its important that we understand all that goes on behind the scenes.
As we look up at the progress of the S&P 500 futures overnight we see how price opened the trading day last night testing and pushing down to what looks to be a new low in the current downtrend that it is experiencing.
To create a technical structure to define your price points, one could draw a trend line across the bases of the major lows to see how price respects certain price levels.
Whenever we enter in on any trades its important to have multiple confirmations both in the technical and fundamental field to ensure that the trades we are making are supported by data and not just emotion.
Currently the market is trading between the rang of $2810 and $2900. Trading within tight ranges where price is moving sideways can be stressful on the trader. Looking to see a break and retest out of what is known as the price consolidation area will ensure that you are not rushing into any trades without proper confirmation.
Break, test and Reject
Successful investors understand the difference between gambling and trading. When it comes to gambling you are sitting waiting to take acting based on pure emotion and euphoria in hopes of the anticipated move going in your desired direction.
As investors we need to ensure that we separate our trading psychology from gambling psychology to ensure that we are acting appropriately in the market to create profitable gains for the future and minimize potential losses.
Many times when you are gambling you don’t have time or resources to be able to properly analyze or determine the probability of your success or failure rate.
When it comes to technical analysis a key strategy to use before entering a trade is called the Break Test and Reject. To implement this strategy in your trading it require setting up support and resistance lines and understanding where key price levels sit at.
I am going to share my own personal chart on FedEx Corp. (FDX) I have simple trend lines drawn over the last few weeks to show how price has been trading to follow their movement.
As we look back over the last month for FedEx, we can see how price has been trading within the channel drawn above. I draw these lines on TradingView which is a web-based trading platform which in my opinion has the most accurate and user friendly interface to use.
Following down the channel I have written a few notes to better explain what is occurring at each price level. Back at the start of August we see price fall down completely breaking to trend line that we have drawn. As it comes down to the bottom of the channel we see price be supported by the trendline.
For investors looking to better manage their risk it would be wise to wait for a test and confirmation of a desired move before entering the trade. We see how price comes back up to test the top trend line twice before rejecting and dropping back down towards the bottom.
Setting up your chart with certain key levels will aid in understanding the behavior of a stock. After Price comes back down towards the bottom we see it unable to touch the top trend line of the channel again before seeing some major resistance below the $160 price level.
After three strong touches below $160 we see price push down toward the bottom of the channel. This is a key area for this stock as we can now look for two major actions to occuer in the stock.
Based on the current down trend if price test below our trend line and begins to reject to new lows then we can look to see if price will break out of the current channel. If price breaks below the current channel looking for a test and reject would confirm the movement of this stock going to new lows.
Now as investors it is important that we do not get emotionally attached to our analysis. This support range has shown to be strong over the last month and it is very possible that price respects the area and gets pushed up towards the top of the range again.
Stay tuned this week as we keep a close eye on the current market and discuss strategies and ideas on how to maximize our returns from the market. For updates direct to your inbox every week make sure to sign up to receive free updates.
As always if you have any questiosn do not hesitate to reach out and I would be happy to help. Keep your eyes towards the sky as we soar to new heights, happy trading!
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Disclaimer: Whereishakar.com is a blog focused on sharing personal ideas thoughts and opinions on various current events related to the aviation industry. The information presented are all the opinions of the author and does not reflect the opinions of any organizations that author may be affiliated with. Any and all information provided Is accurate and relevant to the best of the author’s knowledge although there may be omissions, errors or mistakes in information shared. The purpose of this blog is for entertainment and informational reasons and should not be viewed at as professional advice of any kind. If you decide you rely on any of the information shared on this blog, please be advise it is at your own risk. The information on this website should not be used as professional advice. Whereishakar owns the right to change and manage any and all the content on the blog at any given time.