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Here is an excerpt from our trading plan.
What constitutes Dip6?
Stock market price levels rise and fall as a result of the moment by moment battle between buyers and sellers. Us human traders need to slap a label on the up and down movements just so we can keep track of things mentally.
For us, we’ve been using the label Dip6 to track a possible good size dip that is somewhat overdue at this point, at least for $SPX and $NDX.
After successfully testing Support1 last Thursday 7/25, which essentially was a shallow dip, market participants decided that it was a good enough support level to buy into. And so $SPX $NDX $RUT all rose enthusiastically on Friday, helped along by GOOGL strong earnings report.
Many traders are wondering at this point whether Dip6 will ever come. It would be helpful to define what Dip6 looks like. In our definition, if tomorrow Monday, $SPX $NDX $RUT drop down from the current level to the following support levels, then that would be Dip6.
However, given the current enthusiasm for buying, the chance of that drop happening Monday is low. So Dip6 per this definition will most likely not happen tomorrow.
Can a comparable drop that would constitute Dip6 happen later this week though? Very possibly. Most likely after FOMC announcement this Wednesday 7/31.
The rest of this article covers:
Updates from market internals
Support and resistance zones for $SPX $NDX $RUT
How to approach your trades
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