Saturday, February 15, 2014

The Follow Up

To follow up on Wednesday's post regarding SPY and LNKD we can see how price reacted around the support and resistance areas and the associated volume.  What is even more interesting is the crazy twists and turns to shake the weaker hands out.  Trading is definitely a game for the mentally strong (or just the mental).   Lets looks at what LNKD did the next day after are analysis.  It gapped downed at the open so the prudent move here would be to look for a test of broken support. Instead LNKD rallied right back into the trading range within the first 15 minutes of trading tell me this was a shake out.  The rest of the morning and early afternoon was spent trading within the trading range we defined the day before (195.09, 192.36) until 2pm when we saw another break of support on increased volume.   Again we waited for the test which came near the close of the day.  The test was very telling because you can see that we had very heavy volume but price remained in a tight price range unable to break what is now the resistance area of 192.36.   The next day LNKD dropped right from the open and continued its downward trajectory for the rest of the day.  The next stop is $183. 68 as we defined previously.  Another thing too note is the amount of volume that was transacted within the trading range we defined.  That tells us that any legitimate breakout will have some momentum behind it.   I'm not going to  say that it was easy to trade this in real time but having these predefined support and resistance areas along with volume analysis does certainly help you navigate through the twists and turns intraday.

The SPY chart below again shows the importance and action around these pre-defined support and resistance areas.  Like LNKD, SPY gapped lower (only 14 cents away from support) before moving higher.  However, as you can see SPY broke and tested all the overhead resistance areas before moving to the next level.  Again I cannot stress the importance of defining these support and resistance areas in advance. Using this in conjunction with volume analysis will result in consistent profits.   In my next post I will look to find another stock along with the SPY to analyze for the next trading day. If there is a stock you would like me to analyze just flip me a note I would be happy to post about it.

Thanks for reading.

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