Comparing Previous SPY Stick Saves and Bullish Engulfing Candles

Feb 13, 2014: 1:03 PM CST

With today’s Stick-Save intervention buying power propelling the market higher after a morning downside gap, let’s take a quick look at a few similar examples to compare what happened then to what may be playing out for the rest of the day.

Doing this exercise can help you focus on concepts rather than the tiny details of the 5-min chart.

Here’s what we playing out so far in the S&P 500 or SPY ETF (5-min):

SP500 SPY ETF Stick Save Intervention

The chart above shows the SPY (S&P 500 ETF) on a 5-min intraday scale with an emphasis on the Stick-Save that occurred on the morning gap-down into the $181 support level.

Notice the highlighted yellow region represents the overwhelming majority of price action during yesterday’s “Range Day” session.

With the exception of the morning rejection spike (similar to today’s bearish rejection spike), price remained within the $181.80 to $182.40 consolidation level.

One would have suspected this morning’s gap and breakdown would have been a catalyst for additional selling (bearish) pressure on the downside break but instead, buyers viewed the opportunity as a can’t-miss, swoop in like vultures event where buying pressure flooded selling pressure.

The result was a type of “short-squeeze” or one-sided bullish domination that I like to call a “Stick-Save.”

Remember, it’s not just bulls/buyers who drive a market higher – it’s also the collective stop-losses (buy-to-cover orders) of the short-sellers/bears who positioned into a breakdown.

The collective result of bullish pressure pushing the index off a support level toward – then above – a resistance level (like $181.80 and $182) is an acceleration of buying pressure as bears become buyers and buyers either add to existing positions or put on new positions into a breakout.

That’s the game-plan for today’s session as we note the green “Bullish Breakout Continuation” thesis against the “Fall Back into Consolidation (yellow highlight)” thesis.

For some historical perspective on similar events and outcomes, let’s look at the following comparison:

SPY Historical Stick Save Interventions Bullish Engulfing Technical Analysis Education Comparison

I selected six prior similar situations where the Day Structure began with an opening gap under the prior session’s support (yellow highlight) only to see a coordinated Stick-Save bullish intervention propel price back into the value area and then beyond it for a reversal or trend day outcome.

On November 13 (all examples are from 2013), we saw a small gap-down only to see initial upward action, but price accelerated (short-squeeze intensified) on the break above the horizontal resistance (prior session) high into $172.30 per share.  The result was a powerful trend day continuation and bullish engulfing daily candle.

October 10th saw an initial gap-down under the range but above the prior high, only to see another Stick-Save propel price into then above the prior consolidation. Again, the result was a one-sided market domination all the way into the close.

September 6th saw a similar morning Stick-Save and breakout above the prior session’s narrow Range Day, but this time sellers took the upper hand going into the close.  Nevertheless, a breakout above the prior high triggered – or intensified – the short-squeeze in motion.

August 29th saw a minor gap-down and Stick-Save propel price through the prior small consolidation, resulting in a movement toward $165 again only to see sellers step up their activity through the remainder of the session.

July 26th saw a gap-down and intensive selling pressure collapse price under $168, only to see another powerful V-Spike Reversal Stick-Save event crush the short-sellers (and entice the buyers) back into – then above – the expanding triangle consolidation. This was a stellar one-sided domination event.

Finally, July 19th saw an initial gap-down under the prior range only to see price drift gently back inside the range.  Buying pressure intensified through the remainder of the session to close at – then gap above – the session high.

Putting today’s price action in the context of these examples from mid-2013 to present gives us a clue for potential outcomes – and thus trade management expectations – for today’s session.

Continue monitoring price relative to yesterday’s highlighted range (box) but otherwise be fully aware that the one-sided buying pressure – fueled in part by the short-sellers buying-back to cover losing positions – could continue above the range high.

We’ll judge the close of today’s session in the context of these historical patterns.

Follow along with members of the Daily Commentary and Idealized Trades summaries for real-time updates and additional trade planning strategies.

Corey Rosenbloom, CMT
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