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S&P Analysis Week of Jan 3rd 2021: Happy New Year!

S&P Analysis Week of Jan 3rd 2021: Happy New Year!

Happy New Year to everyone! What will the markets do in 2021? Will we be up or down for the year?

I have no idea what will happen this year except that I think we will continue to see big moves to the upside and downside. I would also not be surprised if we have another black swan event. The equity markets continue to be risky so be very careful trading this year. Don't let your guard down because that's when the market will make a fool out of you. I expect markets to give us nice juicy pullbacks that will look like the end of the world. These could be possible long entries or a time to accumulate shares of your favorite companies.

This is the first week of trading for the new year. There is a superstition that the first day of trading in the new year will tell you whether the market will be up or down at the end of the year. Do you believe that?

How is 2021 starting off? Well, the trend continues to be your friend until the very end. There is a strong diagonal channel that price has been using to go higher. In fact, there are multiple trend lines that are supporting the market going into 2021.

Is the market setting up a bull trap or will the trend continue into the first week of trading?

It might be smart to wait out the first day or two of trading to get a feel for what the market might be setting up for. However, here are the trade setups.

Trade Setup 1: I have a line at last weeks resistance (~3750). Get above that line with a retest and you have a good long probability IMO. Also, technically price has tested around 3720 all of last week so you could be aggressive and take the trade as soon as it breaks above 3750.
However, keep in mind that the last week of the year can be misleading. The markets tend to float around and can easily move higher with low volume . Will the market want to retest 3700 when all the traders come back from their holiday time-off? Be ready for anything the first week.

If price does come drop below the support at 3720, there is the strong diagonal trend lines drawn in where price could bounce off. The line would support a 3700 retest. Be sure to have a conservative stop loss.

Trade Setup 2: I have two short trade setups (trade setup 2a and 2b). 2a aligns with a break over the strong trend line started in the beginning of November. Although a break of this trend line could set off selling, it's not my preferred short trade because of the bullishness of the market. If price breaks down below 3600, then I'm interested in a short trade. Between 3700 and 3600 is no man's land for me, I'm sitting on the sidelines.

Remember to never play the breakouts. Wait for a retest and resumption in the direction of your trade.

"When it feels really right, it's probably wrong. When it feels really wrong, it's probably right."

Be patient and make 2021 your best trading year.

Good luck!

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