Monday, September 28, 2009

Morning Briefing for September 28th: Weekly Profit Targets

We can see in premarket trading that, so far, the S&P 500 e-mini (ES) contract is finding support in the 1036/1037 area. If we can hold Friday's lows with modest selling pressure in the morning session, I would expect a test and possible breakout of resistance in the 1048 region. Failure to break that resistance would set us up for range trading and potential retests of the recent lows. So far this morning, we're seeing the dollar off its highs vs. the Aussie dollar and gold trading higher.

I published the daily price targets for today via Twitter, along with Friday's indicator readings. Here are the proprietary weekly price targets for SPY:

Pivot=105.26; R1=107.77; R2=108.28; R3=108.95; S1=102.74; S2=102.23; S3=102.56.

Recall that these targets are volatility adjusted and represent estimates of how far the market is likely to move in the given time period. Since 2000, about 75% of all weeks have touched their prior week's pivot level; 70% of weeks have hit either the prior week's R1 or S1 level; 50% of weeks have hit R2 or S2; and 33% of weeks have extended to R3 or S3.

When you see that a market move is particularly strong or weak, it makes sense to hold at least a portion of your positions for the more distant profit targets. Range markets will fail to hit R1 or S1 or will fall back below those levels after touching them. Those situations can set up worthwhile reversion trades back to the market's pivot level.

For more on the use of profit targets in swing trading, check out this post and its links.