The S&P 500 (ETF Proxy – AMEX:SPY) retested the highs on nearly non-existent power this week as world events such as Scotland’s succession vote continue to bring wild swings in volatility. In such an environment, it’s quite hard to trade with confidence as you never know when the next news event will reboot the supply/demand forces and send the market careening off in a new direction. This trepidation leads traders such as myself to look for other markets to trade and this leads to low levels of liquidity and increased risk.
If this spike to new highs turns out to be the head of a head and shoulders pattern, I would come back to this market, but for now I am firmly on the sidelines.
The stock of Estee Lauder (NYSE:EL) dipped back into the “buy zone” (grey box) and turned higher to form a new higher low on the daily chart. I see a distinct risk that this rally will fall short of the highs and thus form a head and shoulders pattern on the daily chart. Should this occur, that would be my signal to take what profits exist and move on to the next trade.
Alcoa Aluminum (NYSE:AA) has been a paragon of orderly price action in a market that has been chaotic and volatile. This trade shows how there is always quality movement out there someplace in the markets…you just have to dig deep and find it.
Having reached my profit target for partials (grey box) it’s time to let this trade go and see if the next support level near $15.20 can be tested.
There is no appropriate place to trail stops at this time, so I will leave things be and let the next price wave form before trailing to protect open profits.