Back in April I tweeted a picture of a SPY chart that I thought was rather instructive. Here is the chart:

A few things we can take away. The first is that the SPY 204.30 had been tested in February and then again in March. The bounce in March was very fast moving from the low to SPY 211 in four trading days. Often, when a market moves very quickly from a low to a high that move is unsustainable and we will have a re-test of the low. The SPY in fact did drop very quickly back to the low in late March before taking several weeks to climb its way back to 211.

This second move to 211 was slow and steady with many market participants having a chance to get long on the way up. On April 16th we closed just under 211 and for the first time we didn’t see aggressive selling in this area. So the probability favored a move higher in the market in the near term. My thought was any pull back would be shallow perhaps a retest of the 209 support from a few days earlier, but certainly not a move back to 204.30. And any move above 211 that held for more than 30 minutes would be a buy.

The tweet received a bunch of “likes” and “retweets” from other pro traders who follow price action, and I assumed they had made similar judgments. The following day, Friday, we gapped lower (I can’t recall the catalyst but I believe we were following global markets lower). That down move prompted an anonymous troll on Twitter to start sending me lots of messages the next few weeks regarding the prior day’s tweet. Instead of asking what I had meant by that tweet, or asking whether the day’s price action had in any way changed my thought process going forward he used his anonymous free time on Twitter to chide me that I was wrong. I was slightly amused.

The weekend happened and the following week there was no downside follow through in the market and SPY made a new closing high. I thought about writing a post explaining that no in fact my analysis wouldn’t change because the next day we traded lower. But it was earnings season and instead spent my non market hours focused on that.

This past week on Monday I tweeted this (actually shared in SMB RT which uses an API to push messages to StockTwits that are tagged with $).

There was strong price rejection at the end of the day and my thought was if the following day we saw some downside confirmation we were likely to see a pull back. A few likes/retweets from other pros seeing the same thing. The next few days we rolled over but sadly I received no positive affirmation from Mr. Anonymous troll. It’s a good thing I have a dog for that! If the market had ripped higher closing this week at SPY 216, instead of rolling over, would my analysis have changed post facto? Of course not!

If we gap lower Monday I will likely buy the SPY and a few market stocks. Yes breadth has deteriorated and yes we could trade lower in the coming weeks but trading is a game of probability and aggressive multi-day down moves in a BULL market should be bought. Especially ones that are testing a prior breakout area. Yes, resistance does become support and vice versa.

Steven Spencer is the co-founder of SMB Capital and SMB University which provides trading education in stocks, and options. He has traded professionally for 19 years. His email address is: [email protected].