As the markets continue to sell off, we are sticking to a simple game plan as we work through this volatility. We have a key level, and we know exactly what to look for at that key level in order to make our next round of trade decisions.
Here is what we’re looking for on both the upside and the downside.
BULLISH SCENARIO:
Key Level: Weekly 21 Exponential Moving Average (EMA)
In order for this bullish trend to continue, we will look for the SPY and QQQ to find support at the weekly 21 EMA. In a bullish uptrend, a dip to the weekly 21 EMA is often a great buying opportunity.
The key here is that we see support at the mean along with a big flush in the Volatility Index (VIX). If that can unfold, the last piece of the puzzle is to see momentum shift to bullish across all lower time frames. If and when this unfolds, we will look for the market to continue the trend to the upside.
BEARISH SCENARIO:
Key Level: A weekly-close under the 21 EMA
In the event the indexes get a weekly close under the 21 EMA, that is the first potential sign that the trend is at risk of shifting to the downside.
After a close under the weekly mean, we would wait for the first oversold bounce to the unsold. If that oversold bounce gets rejected at resistance under the weekly 21 EMA, we would look to short for a flush back to the lows.
During volatile times, anchoring your decisions to key levels such as the weekly mean can make your job of being patient, disciplined, and prepared for the next move that much easier.
Stay Focused!