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Where are the Markets Heading? August 21 Chart of the Day - S&P 500

So often I get asked "Tom, where do you think the market is heading?"
(Think or Swim chart link at bottom of this post)

I start by saying the better question is "where could the market be heading?"

Because what I think doesn't matter to price action and no one knows with any certainty where the markets are heading. 

I don't make predictions, I don't call tops/bottoms however, I may react to price when it reaches a pre-determined level or zone of interest by trading or investing in that particular index, equity, option, commodity, Forex, crypto, etc.

For example, let's take the S&P 500 using its futures ticker /ES.

First thing that you should know is that I maintain a Chart Library for all charts that I follow or trade across multiple time frames. 

My chart library for each instrument incorporates the 5 Price Action drawings that are free and native to every charting platform out there.

I save charts on the Monthly, Weekly, Daily, and 4-hour time frames in my chart library so that I can formulate overall market sentiment and a directional assessment. 

This is also helpful when price, as it often can, starts to melt down or up through lower time frame levels and helps me quickly determine where could price be heading to next?

Depending on whether I'm planning to "invest or trade" I'll select a time frame to create my plan as price approaches an anticipated level of interest.

Once price hits my level I typically enter on first touch, apply risk management techniques and trade management strategies appropriate for my trading style, and then let the chart do whatever it's going to do.

For intraday trading /ES I rely on the 4-hr timeframe and create what I call my "Battle Plan" chart that includes all the combined levels in both directions that price could go based on my price action technical analysis. 

That's what I see as one of my primary jobs as a trader and chartist so that I can create my advanced plan if/when price actually reaches one or more of my predetermined areas of interest.

The biggest unknown with respect to the various Fibonacci drawings is which one will actually become the "active Fib" meaning that a level or zone holds. 

Again, we don't know in advance but utilizing the proper anchors we can answer the question of where price could go and what level or zone it may respect. 

Keep in mind that price action technical analysis, nor any other system, is 100% foolproof. But using math and probabilities (Fibonacci) layered in with trend, support/resistance, change control zones, and supply/demand zones we can create "edges" with favorable scenarios for both trading and investing.  

Of interest to note on this chart is that there are two unfilled GAPs.  One higher and one lower from current price location.  And more times than not, gaps get filled but we never know when...

If you're interested in learning how to properly place various Fibonacci anchors you can download our Free Guide: 6 Fibonacci Types that Create the Most Precise Price Targets and Reversal Zones.

Ultimately, you should always know that price can disregard all levels and do whatever it wants at anytime for any reason.  See the  Hawaiian Electric chart as recent proof of that...

So what's next? 

We don't make predictions...

Nobody knows for sure but using these 5 price action tools traders and investors can develop levels of interest in both directions.

  1. Support/Resistance
  2. Trend
  3. Fibonacci 
  4. Supply/Demand Zones,
  5. Change Control Zones

Take a look at the charts and let us know what you think.  

We'd like to hear from you in the comments sections.

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Think or Swim Chart Link - http://tos.mx/cZ2oga7

Click or type link in Think or Swim > Setup > Open Shared Item

 

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