SPY Dec 8 Overnight Bear Flag Meets and Exceeds Target

In another interesting complete Bear Flag that formed into yesterday’s close, giving a target to trade on any downside break of the lower trendline in the morning session… price had already met the price projection target forecast by the bear flag right as the market opened!

Those are some of the most frustrating experiences, when you see a clean pattern, get prepared to trade it, get excited about it, and then realize that the move is over before it began.

I mentioned this pattern in last night’s “Idealized Trades” report to subscribers and explained how to trade the breakout and target to play for on any break under the lower trendline at the $110.70.

Under classic bear flag price projection (see my page on Bull and Bear Flags), we take an equal “measured move” of the first impulse down and then – in this case – subtract it from the upper trendline to get a conservative price target to play for.

That was the $109.90 level as shown by the Fibonacci Price Projection tool.

So what do you do when you see that the futures are down and then the market opens at your target (that is, if you only trade stocks or ETFs instead of futures)?

I know it’s no comfort in having a game-plan that worked as you expected… but there was no way to take advantage of the expected move.

Sometimes price can find support at expected price projection targets, so look to see if there was an upward move off the target to trade.

In this case, that clearly did not happen, as price plunged for the first 15 minutes off the open.

The Fibonacci Price Projection tool also shows the 161.8% price projection target, off of which we could get a similar inflection or reversal up, but it’s ill-advised to use Fibonacci lines alone – wait for a candle or some other buy signal to form.

In this case, a long-legged bullish candle formed off the $109.28 target at the 161.8% level, which allowed for a scalp reversal/retracement trade up to the 20 period EMA.

To me, this shows how trading can be difficult – you can be exactly right in your analysis and what you think price will do for its next swing… but either the move occurs too quickly (or even overnight!) for you to get on board.

I posted similarly about exactly the same thing happening in my prior posts:

Lessons from the October 13th Ideal Morning Bear Flag

September 14th:  “Ideal Bear Flag… but No Time to Act”

June 15th:  “Ideal Bear Flag Completes Intraday with Lessons”

As always, take everything as a learning experience and keep building your knowledge going forward!

Corey Rosenbloom, CMT

Follow Corey on Twitter:  http://twitter.com/afraidtotrade