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07/14/2021 |

$SPY Daily Chart Case Study: Raindrops, Fibonacci Levels, and Seasonality

What is more important than using technical analysis is actually using it correctly. This may seem like a no-brainer; however, if you ask a dozen traders about a certain TA principle, I’m sure you will not get the same answer from all. Applying TA methods incorrectly comes with account draining results; such as bad entry points or leaving a lot of money on the table.

One of the most mistakenly used TA tools is the Fibonacci extension. For some, finding the right pivot point to pull their Fibonacci can be a challenging task. If we weren’t using TrendSpider charting software, an in-depth explanation of the “do’s and don’ts” of drawing fibs on your own would be necessary, as well as quite a bit of time and missed trades to get it right. Getting it right without a lot of wasted time and effort is what makes TrendSpider’s Automated Drawing Tools a necessity for any trader who wants to take the grunt work out of trading. Today, we will look at a case study using TrendSpider’s Auto-Fibonacci Drawing Tool in combination with Raindrop® Charts and Seasonality on the $SPY.

$SPY Daily Chart

$SPY chart.

This is a daily raindrop chart of the S&P 500 ETF, SPY. In this chart, we will go over the seasonality for July and August as well as how you can use technical indicators and breakouts in conjunction with historical seasonal trends in the market. This analysis will also touch on “Raindrop charts” on TrendSpider which help market participants view the volume profile of individual candle ranges which allows you to see volume flow around support and resistance zones.

  1. This number highlights the measured move for Fibonacci extensions on this daily chart of SPY. In this case, we want to measure a meaningful drop in price to measure the move which happened back in May of 2021. Once the measured move is defined and the chart starts to breakout, you want to use 1.618 Fibonacci extensions, especially as the price is in “price discovery” mode which means there is no recent price action to look at as potential resistance above. Fibonacci levels work due to a large number of investors and traders that use these levels as targets above.
  2. This number represents a breakout through the 1.618 extension using the Raindrop charts. As you can see, there is a “bulge” of volume above the line (looks very similar to a balloon) which shows conviction by buyers willing to absorb supply above the 1.618 extension. As you can see, the price continued to move up the next day after the “balloon breakout”. Anytime you have a volume-backed move, it is worth keeping an eye on for continuation.
  3. This number represents the historical monthly seasonality for SPY over the last 5 years. As you can see, July has a 100% win rate which means that the month of July has closed higher than the June monthly close 100% of the time since 2016. As mentioned in #2, we have a technical breakout through the 1.618 extension with a very historically strong month of July which allows you to combine technical analysis and historical seasonal trends together to get a better edge in the markets.
  4. This number shows the 2.618 extension which has a “sensitivity” alert on it. If the price continues up, the 2.618 extension would be the next target above around $452-$453. The ability to create “sensitivity” around a price level on TrendSpider allows you to have some flexibility and margin of error in case the exact price level above is not hit. Anytime the price gets within the purple area, you would get an alert through your email and via text message.

We hope that you enjoyed this case study which shows the value of using TrendSpider’s automated tools to spot profitable entries and exits. By just clicking on the “auto-fib” button, you can have a perfectly drawn Fibonacci extension on a Raindrop® Chart of any asset you choose to see where volume is aggregating for a breakout or down at profitable Fibonacci levels. Try out TrendSpider free for 7-days and see what our automated drawing tools can do for you.