Setups for Week of 09/07-09/10

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After reversing course and closing out last week in bullish fashion, the market has catapulted from the lower to the upper end of our multi-month trading range. As we enter the autumn, this broad range is becoming more and more obvious. The more popular and predictable a phenomenon occurs in the market, the more likely it is to fail. Just when the easy trade seems to be to aggressively short 1120 on the S&P 500, and vigorously buy 1040, it will become anything but. Thus, while it may be too early to boldly position for a break of the range, it is probably becoming a little late to assume that it will automatically hold.

One aspect of last week’s rally that was particularly bullish, as seen in the S&P daily chart above, was that we went out on the highs each successive day of the rally. You can see the full-bodied green candles above, even after the initial surge on Wednesday. This indicates a change in psychology, as traders suddenly had no interest in fading the moves higher, unlike in August. In the short term, meaning early this week, I expect a minor correction. We could see a correction in price (a sharp, but brief, pullback) or a correction in time (a period of sideways consolidation). I will be watching closely to see if the change in sentiment persists, and if the bulls are confident in arriving to buy the dip. If that happens, I expect us to plow through the 1130 level, and take a shot at 1150. If not, well, then perhaps we will need to see the financial news media complain about the trading range for a few more weeks before it gets long in the tooth.

In sum, I was taken aback by how many bullish charts I saw this weekend. However, a good number of charts are fairly extended and need a pause, in order to create lower risk entry points. The key is to find the leaders, and aggressively pounce on them when they give you a brief chance to do so. Please, please, please, do not chase stocks if we gap higher at the open tomorrow morning.

Below, you will find my best trading ideas for the upcoming week. I have noted on some of the charts where you should wait for a slight pullback before adding. Feel free to pick and choose whichever setups best fit your style. Please keep in mind that these are trading ideas only. I also urge you to use stop losses in order to mitigate your downside risk–I prefer a trailing 7-8% stop loss.

I hope you find these ideas helpful.

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