The S&P 500 index has made another closing all time high. If you are not on this train and would like to be, there is a way to limit your risk buying at these levels.
I have drawn in the support levels on the chart. Some of these price levels are more important than others.
S&P500 Index ETF (SPY) daily
The red horizontal line that is just below current price represents the previous high from May 2015. This is where price and momentum began to break down and resulted in some pretty massive price swings over the past 14 months. This level is fairly important in that if broken it is likely price will pull back further and dampen current momentum.
You can use this level, the red horizontal line, as your line in the sand. Dip your toes in and buy SPY as a momentum trade. You can always exit the trade any time price closes below the red horizontal line. Your risk is probably around 3%.
I don’t usually like to buy at all time highs but here is an opportunity to do that with limited risk.
The next price level I consider very important is the upwards sloping white line that is below current price. This rising price level has supported price for many years. It’s pretty easy to see on the weekly chart.
S&P500 Index ETF (SPY) weekly
If price breaks down into this area and is supported you can dip your toes in and buy SPY as a bounce off support. If this happens I will describe the risk levels then.
The market has been acting very strange with price trading in such a narrow range for the past month. The upside breakout will certainly need follow through but…I consider this a low risk opportunity to get in if you are not.
The energy complex is looking interesting.
Look at the monthly chart for XLE, the Energy Sector ETF.
Energy Sector ETF (XLE) weekly
Price has reverted to the mean; the guide slope established from the lows in 2002 and the lows in 2008/2009; the green upwards sloping trend line. This is an important price level to take advantage of.
This rising support level can be used as your line in the sand; your risk. Exit with multiple closes below support to limit risk.
Trade Smart,
Don