Change of market behavior= change of trading plan

For most of April we traded fast and furious assuming a range bound tape which means market goes up to resistance, gets hit hard, goes down to lower BB, buyers show up, back and forth.    How do you trade a range bound tape:    Active trading, tight stops, go for singles.

Last week though (weekly of April 30-May 04) something happened which we talked about in our blog last weekend and has been a recurrent theme in our posts.  $QQQ broke out of the 20sma weekly.    This meant to us that a change could come if SPY could follow QQQ — and this week it did with a solid close over 270.

Range bound tape:   from lower BB to upper BB, rinse and repeat.      This week though the tape morphed into a trending formation —  trend in sweet spot between upper Dev 1 and 2 (upper blue and black lines).    This means a change of plan.

So how does the change of plan reflect in actual trading?    Selling partials, keeping riders, setting wider stops, being much more patient.  Why? Because it’s  going to be more difficult to get back in as market doesn’t let buyers in, grinding higher in that sweet spot trend.

We still have all the stocks that triggered last week and which we posted about last weekend.   We still are holding onto $BABA $NFLX $SMH $XLF  plus adds from Monday to Wednesday of this week: $SPLK $FB $BIDU but we have taken partials in all of them.   If trending market continues we’ll look to add into pullbacks on support.

$IWM which had been the laggard for a long time has been the leader for the last few months, then $QQQ,  $SPY next and the laggard now is $DIA.     This week for us reflected a  pivotal time where you wonder if the leader can pull up the gang or whether the laggards will pull down the leader.    We found out this week as finally $SPY broke over 270.  Leaders won, for now.   Watch that level closely this week — we expect some digestion and chop but would want to see that level hold into Friday.

Happy Mother’s Day to all the moms out there reading this post!