The Market May Have Established a Support Area and maybe Even a Trading Range

Tom Gentile

Posted in
Daily Report

By: Tom Gentile
December 8th, 2022

3 mins read

SPY at Support

Once again, I provide you all a chart on the SPY.  SPY is my representation of US Equities and the chart I start with in my technical analysis in determining a directional bias, up – down or channeling sideways for the stock market.

I also have another chart view on SPY and my other corners of the market called my ‘All-in-One’ chart that I will introduce in future educational pieces.

Once I have a directional assessment on the nigger picture markets I then go to the sectors that coincide with my directional view on the bigger index.  Then from there I whittle my search down to charts on stocks in that sector looking for correlations between them all to determine what security I wish to pursue options trade on.

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Figure 1: 100-Day Candle Chart on SPY

I have documented the ascending support in previous articles.  I’ve also pointed out the SPY is testing that price are and that it may turn out to be a support area.

Testing a support area means it is at that price support. Becoming a support would need the security to trade at a higher price up and off that support.

Yesterday’s price action is what the technical traders using Japanese Candlesticks would call a ‘Doji’ day.

Doji Candlestick

Real quick reiteration of a Doji candle.  It is a very narrow range candle where the open and the closing price is pretty close to the same price.  Loosely translated Doji means a ‘return to home’.  When we say the open and close price of the candle body is close to the same price it means the stock opened, maybe went higher or lower or both, and then returned back to its open price.

This signifies indecision between bulls and bears, and neither was in charge or really took the price higher or lower on the day.

It is the subsequent days that will determine if this doji bring a pause int the existing trend and continues or reverses.

Today’s price action saw the markets gap up a little bit and close higher, (the first closing high over the past 6-trading days),

Box Trading Range

With the price action looking like a formed support area, we can look to a higher price point pivot and start to establish a sideways trading range or box trading range.

When one can establish a support and a resistance price area that is when the trend shows up on the chart as a sideways trend.  As long as the security trades between support and resistance one can consider option trading strategies based on that price action.

One such idea is to Buy to Open a call option on support and Sell it to Close at resistance.

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