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Follow The Trend – Beware Of Reversal

The E-mini S&P continues to chug along higher, which is reminiscent of last year.  The market broke out of a major down trendline and you have to go with the price action as a trader.  Now, we are at an interesting point after Tuesday’s action.

The trend is higher and Tuesday was an inside day (traded with the range of Monday).  The market took out the low end of the range on Wednesday and reversed to close above the high end of the inside day.  This leads to a positive setup for Thursday and beyond, especially if the Wednesday high is taken out. 

This type of pattern can also lead to a sell opportunity if Wednesday’s high holds and the low on Tuesday is taken out.  This is often a very reliable trade, as those who went short on Tuesday will be defending that high and new long will likely sell if the lows are taken out.

Looking forward, I see a possible wedge forming on the daily charts.  Volume has been steadily declining on the rally from early July, which adds to the reliability of a wedge.  The up trendline will have to be broken before a short trade can be placed.  This could be a great shorting opportunity or the market could continue the old methodical climb higher on low volume.  Stay with the flow until it changes.

Disclosure: no stocks