To The Moon

Like to thank Tiger for awarding the weekly top prediction for SPY. It's an honor and a privilege to winning this reward for the fifth time since Feb 2023. I'll do my best to share how to trade SPY profitably in the coming week again.

The US government will almost certainly step in to bail out the financial sector even if it did collapse. This serves as the final backstop against a worst-case scenario. In truth, there are a lot of issues going on in the global economy and America is doing okay only because the US Dollar and US debt is still viewed as safe-haven assets. This will remain true for a while, and it is in America’s best interest to maintain economic and financial stability so the world can continue to trust in American assets.

S&P 500 is flirting between 3800 and 4200 since the beginning of 2023. The past week of banks in crisis actually beat months of effort by the Fed to bring down interest rates hike potentially.

Up one day, down the next, over a week

WHAT IS AN INSIDE BAR?

The inside bar is a popular reversal/continuation candle formation that only requires two candles to present itself. This pattern is a direct play on short-term market sentiment looking to enter before the ‘big moves’ that may take place in the market. The inside bar shows a reluctance of prices to progress above/below the preceding candle high and low indicating market indecision.

HOW TO IDENTIFY AN INSIDE BAR?

The following steps are used when identifying the inside bar pattern:

- Identify a preceding trend using price action/technical indicators

- Locate inside bar pattern whereby the inside bar is engulfed fully by the preceding candle high and low

TIPS AND STRATEGIES TO TRADE IT

Some traders consider it a continuation pattern though a breakout in the opposite direction is possible too. After price has trended up (or down) for an extended period, the pause in price movement (represented by the inside bar) precedes a reversal of the trend.

However, there is another way to trade inside bars and this is rooted directly from what the candle pattern does NOT reveal. When traders see an inside bar pattern form, it is interpreted as the markets unwillingness to push price higher or lower. This can be for any number of reasons:

1. An extremely pertinent report is being issued soon (FOMC in this case), or

2. The market just made a stratospheric leap and traders are tepid about bidding price much higher or lower.

Whatever the reason, the motive is the same: seeking potential volatility in an effort to increase profitability. When there is a situation in which traders are unwilling to bid price higher or lower, it is seen as a potential situation for future increases in volatility. The inside bar candle pattern is NOT telling traders that the market is bidding price higher or lower but rather that the market is waiting before making the next big move in the asset. This means potential opportunities for traders.

Pumping up the volume next week

1) Inside Bar breakout strategy

As mentioned previously, the inside bar represents a period of short-term consolidation with low volatility within a trending market. Traders then look to trade breakouts after a new high/low is formed.

The breakout occurs below the low of the ‘preceding bar’ thus triggering a short entry into the market. Had this breakout occurred above the high of the ‘preceding bar’ then this can signal a long (buy) entry indicating a potential reversal in trend. Trading against the trend carries more risk which leads to greater caution taken by the trader.

Stop levels can be taken from the previous swing high/low (dependant on trend) as dictated by key price action levels. Using the stop as a benchmark, traders can use this stop distance to expand by a factor of two to realise the take profit (limit) level. This creates a 1:2 risk-reward ratio in line with responsible risk management. Fibonacci extensions may also be utilised as a limit forecast.

Setting up for 393, 396 soon?

Inside bars signal continuation or reversals, which makes this trading pattern more complex. False breakouts can occur which lessens the reliability of the inside bar as an isolated pattern which is why traders prefer using the inside bar as part of an overall trading strategy. 

Big money flows

Given how many insiders have started to buy shares, those who do not want to deal with options could consider buying KRE or XLF or even the specific shares that insiders are buying. Use some kind of dollar cost average—spend about N dollars every other day on these positions for the next month. The risk reward is there.

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