If you take a look at the 30 min chart of the SPY, you find a market filled with landmines and gaps along with a clearly defined trading range in which the market trades currently.

Let’s take a look at that range, the upper and lower boundaries, and the many gaps that formed through November into present.

I can’t remember seeing a market so choppy – it’s almost frightening to view!

This market is perhaps best left to the day-traders, as swing traders who email me are having great difficulty both long and short.

A few people have called this a “Market Distribution” phase and it may very well be, but the main take-away idea is that the market is in a tight value area and Trading Range spanning from $111.60 to $109.00.

Perhaps it’s best not to be a hero and try to trade in anticipation of a market breakout – price will either break above $112.00 and burst higher or trade back down to the $109.00 area, and any breakdown beneath $109.00 would likely lead to a range expansion move lower.

I’m a fan of the “Let the Market Tip its Hand” strategy instead of trying to guess in which direction price will break before it does.

Case in point, today’s morning action gave us a round of “Popped Stops” when price burst to a new high, taking the stop-losses of the short sellers… but buyers did not step up and continue the breakout.

As such, the chart is showing a “Failed Breakout” or more commonly called a “Bull Trap.”

Bull traps can be precursors of a shock downside move, as any bull (buyer) who bought at the new highs is now trapped, and may decide to take a stop-loss (sell), creating downward pressure, which joins with the short-selling of the bears who are taking positions in anticipation that the $111.50 area will hold and that the market will move back down to $109.00.

As a quick reference, volume and momentum have a negative recent slope to them, but that could just be traders lightning up on positions in advance of an economic-data filled Thursday and Jobs Report Friday – both of which could swing the market up out of the trading range on good news and down beneath it on worse than expected news.

I describe this in more detail along with analyzing the 60-min and daily view of the S&P 500 in tonight’s “Idealized Trades” subscriber report.

The main idea is to be safe and not over-commit yourself in a market that is trapped violently in a range, where overnight moves are large and intraday moves are – for lack of a better word – mostly rangebound.

Corey Rosenbloom, CMT
Afraid to Trade.com

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