What This Master Trader’s Words Reminded Me About The Market Right Now
While reviewing charts of last week’s price action, I thought of something I learned from Ralph Acampora.
Ralph is an old friend who has been involved in the stock market for over 50 years. For many of those years, he was a frequent guest on Louis Rukeyser’s “Wall Street Week,” a Friday night show on PBS that was once the only source for real news about Wall Street.
Of course, now we have CNBC, Bloomberg, Cheddar, and a handful of other channels dedicated to news from the financial markets. And Ralph is still a frequent guest on the networks.
I think one of the reasons Ralph has been a fixture on Wall Street for so long and a guest on so many popular shows is because he expresses his views so clearly. His logical and straightforward way of explaining things is one of the reasons I remember many of the lessons he’s taught me over the years.
Among the sage advice he’s offered, one of my favorite things is a question he asked: “If you knew a stock would drop from $20 to $18 and then go $22, would you sell it at $20?”
His answer was simple. “Of course not. After commissions and taxes, it’s not worth it.”
Even now, with some many brokers offering commission-free trading, he hasn’t changed his mind. Ralph’s logic is that you could be wrong on the short-term trend, so stick with the long-term trend. If your work indicates the stock is going up, hold through the pullback.
Applying This Wisdom To The Charts
The chart of the SPDR S&P 500 ETF (NYSE: SPY) below reminded me of Ralph’s words.
This week, I want to look at SPY’s candlestick pattern again. Like we saw last week, the close is almost equal to the open. This candlestick is called a doji. It’s a particular type of doji called a gravestone doji.
Like many candlestick patterns, the name comes from its appearance. In a candlestick, the open and close are marked by rectangles, which are known as the “body” of the candle. When the open is near the close, as it has been in the past two weeks, the pattern is called a “doji.” The vertical lines in the candlestick, which mark the highs and lows, are known as “shadows” or “wicks.”
Last week, the shadow was above the body, with almost no shadow below the body. This is considered bearish.
To understand why it’s bearish, we can look a little closer. The top of the shadow shows the high of the week. At the peak, traders began selling. They pushed prices down, and they stayed down. When the market closed for the week, SPY was down near the week’s low. This is an indication that sellers were eager to take profits last week and buyers were waiting for a signal that they should enter the market.
That’s where we ended the week. Sellers had the upper hand. But I expect this to change and am expecting just a brief pullback.
In the chart above, I’ve graphed my Income Trader Volatility (ITV) indicator (red) in the bottom panel. As you can see, ITV (red line) fell below its moving average (blue line) last week. ITV is similar to VIX in that it rises as prices fall. So when ITV is moving down below Its moving average, like we’re currently seeing, it’s a bullish signal.
Our last chart this week shows another daily chart of SPY. On the bottom panel of this chart is my Profit Amplifier Momentum (PAM) indicator, which remains slightly bearish. PAM is designed as a short-term indicator.
But I want to point out something else about this chart — the blue dashed line I added in the upper panel. This is showing support for SPY around $410, which corresponds to about 4,100 on the S&P 500.
All together, we’re seeing bullish signs from the support and from ITV, with the only bearish action coming from the short-term focused PAM indicator. For now, risk is limited and the upside potential is significant.
I plan to take advantage of this bullish environment by making income-producing trades that limit our risk — while leading to a windfall of about $748 per week, on average.
I’ve been making trades like this for years, using the knowledge I gained from studying under some of Wall Street’s best traders (like Acampora) when I got out of the military. And while I don’t like to brag, my track record speaks for itself: We’ve achieved a win-rate of 90.2% — thanks to my award-winning indicator (ITV).
That’s why I’ve devoted my career to this strategy, and it’s also why I’ve been able to generate more income than I ever did during my time in the military.
Want to learn more? Go here to learn how to start earning more income now…