I thought about doing a series of tweets but this should be more coherent.
On Friday SPY printed an NR7 candle, which is to say that it was the most narrow candle in at least seven sessions. We can use this range to plot our strategy for Monday.
Note that the last such NR7 occurrence, on the 18th of this month, kicked off a vicious decline, all too knowingly predicated by deteriorating breadth throughout the summer. My observation this weekend has been that there are far too many people in the ‘V-bottom-continues’ camp, but I will not let that blind me to the possibility of additional upside.
If SPY breaks above Friday’s range, the plan is to stick with long ideas. Only a stubborn mule can’t see the potential to tag the 20sma & former support near $205. If however we open nicely & things unravel to go red, shorts can be initiated with requisite stops at or near the high of the day.
On the other hand, if we break below Friday’s action, seek to get short, as chances are prices stay red, & at the very least we’re likely to fill the recent gap near $194. Here again, this is not to be treated as an entrenched viewpoint. Be willing to reverse course if the market does the same by going from red to green.