Recently, we’ve talked about trading the market with a rangebound stance. This means we are looking to determine the main support/resistance levels the indices are trading within to define the current range and then watch for trading opportunities based on those key levels.
With that said, which price levels are we currently watching in two of the major indices?
First, let us use the Russell 2000 (IWM) and the S&P 500 (SPY) as examples for ranges we are keeping track of.
As seen in the above chart, the black lines are support and resistance levels that define the range.
- SPY – $451 resistance with $420 support.
- IWM – $208 resistance with $191 support.
Because Monday had such a significant breakdown paired with an end-of-day rally. it gave us a temporary support level to watch. On the other hand, the previous break from support makes the high of the range and a resistance level to clear if the market is looking to run back towards highs.
With that said, this gives us our range to watch and take trades from.
From the long side, we can look for buying opportunities near the lower end of the range with a tight risk to new lows. On the high end of the range, we can either watch for shorting opportunities, or for a range breakout.
The key to range trading is to avoid trading in the middle which tends to have choppy and high volatile price action. When trading equities alongside the range in the major indices, we now have specific areas to watch that can give us higher odds for successful trades.
However, if the range is broken, we must be quick to exit trades that are based on these levels holding.
ETF Summary
- S&P 500 (SPY) 442.19 the 200-DMA.
- Russell 2000 (IWM) 208.76 resistance. 191.23 support.
- Dow (DIA) 340 needs to hold.
- NASDAQ (QQQ) 334 support.
- KRE (Regional Banks) Needs a close over the 50-DMA at 72.53.
- SMH (Semiconductors) 257.24 support from Monday’s low.
- IYT (Transportation) 248.85 support.
- IBB (Biotechnology) 122.94 new support.
- XRT (Retail) 75.62 low to hold.
- Junk Bonds (JNK) Watching to break lower.
- SLV (Silver) Could not hold the 10-DMA. Watch to hold 50-DMA next at 21.36.
- USO (US Oil Fund) 58 support.
- TLT (iShares 20+ Year Treasuries) Watching for 140 support to hold.
- DBA (Agriculture) 20.37 resistance area.