The Way of an Eagle: 6 Key Trading Lessons

July 17, 2016

Mish's Daily

By Mish Schneider


While vacationing in Alaska, I pointed my camera up at this eagle in awe of how majestically it sat high on his perch, perfectly balanced.

As we ended last week, it is with the same awe I watched the S&P 500 and the Dow sit on their perch on all-time highs.

Bald Eagles represent the ability to see hidden spiritual truths and the overall pattern /big picture. From the eagle, we learn that life looks different from high atop a perch or with an aerial perspective.

Known for patience, an eagle can sit perched in a tree for hours on end. That patience from high above shows us that we need to view the past and the present objectively while we look towards the future.

Last week, like an eagle, the US stock market watched patiently from above as the world endured several momentous and horrifying events. Incredibly, the market never lost its steadfast objectivity and purpose.

This week, we will watch to see if the market indices continue to evoke the eagle and can remain perfectly balanced on their perch.

With a complete 6-month calendar range to navigate from, we begin this week with an objective compass.

Last week, the TLT or 20+ Year Long Bonds dropped from the highs established earlier in the week almost resembling eagles’ prey. However, it did hold onto the runaway gap low at 138.

The US Dollar strengthened further. The Russell 2000 consolidated at new 2016 highs.

The 6-month calendar range acts as a reliable indicator to look at for the overall pattern/big picture. The instruments that break out or break below that range the soonest, typically offer the best low risk trade opportunities.

A sector that attracts the most speculative interest, Biotechnology (IBB), provides a prime example. IBB has a relatively narrow 6-month calendar trading range.

The calendar range low is 256.53. The high 274.81. It closed the week at 272.45. Should IBB breakout above 274.81, the probability that it will continue higher is statistically relevant. Should it test and hold 256.53, it offers a low risk buy against the calendar range low.

Logically, if IBB breaks below that range low, not only IBB, but the rest of the market will then have a statistically high percentage chance of failing.

As traders we have much to learn from the eagle. His fast and furious flight teaches us to be swift and focused. For maximum results, we must learn when to coast and when to accelerate.

The Way of an Eagle: 6 Key Trading Lessons

  1. Keep your eyes on the prey-Stick to your vision or plan

  1. Weather the storm-There is opportunity in every opposition

  1. Fly high-Rise above the crowd mentality

  1. Seek new opportunities-Rather than scavenge, hunt in fresh territories

  1. Be choosy-Assess the risk/reward before trusting a trade

  1. Renew yourself-Shed off bad habits and avoid getting into ruts

S&P 500 (SPY) No more runaway gap since it got filled. If we begin this week under 215.31 expect more selling pressure with support at 212.50.

Russell 2000 (IWM) Needs to clear 120.42 for more upside. Narrow range and consolidation pattern. Under 118.83 expect to see 117.

Dow (DIA) Unless it trades down to 183.80 still has the runaway gap

Nasdaq (QQQ) 110.75 underlying support to start the week

XLF (Financials) 23.60 substantial resistance it pierced intraday for 2 days yet closed below. 23.20 first line of support then 23.05.

KRE (Regional Banks) 39.85 the 200 DMA needs to hold.

SMH (Semiconductors) 60.13 all-time high. 57.80 area support

IYT (Transportation) 143 pivotal. 146.07 the 2016 high

IBB (Biotechnology) 265.20 an intersection of moving averages and support.

XRT (Retail) 43.39 support or Granny could spell trouble

IYR (Real Estate) Nice 3-day correction and decent close

GLD (Gold Trust) Inside day. Long term still really bullish unless fails 125, then only mildly bullish

SLV (Silver) Could not close above the 50 week moving average. That most likely means a drop to around 18.50 and then we can see if it can power back up and through

GDX (Gold Miners) Good consolidation near the highs. Inside day

USO (US Oil Fund) Noise until it changes the 1-year trend down

OIH (Oil Services) Consolidating

UNG (US NatGas Fund) Needs to clear over the 50 week moving average once and for all

TAN (Guggenheim Solar Energy) Back over 21.80 better. 21.20 support

TLT (iShares 20+ Year Treasuries) Tested near 138 the runaway gap low and held. As primary trend is up, will watch how far it can rally from that level this week

UUP (Dollar Bull) 25.07 the 200 DMA resistance. 24.70 support

EEM (Emerging Markets) I just noticed that this had not one but two gaps higher last week.

FXI (China Large Cap Fund) 34.60 the 50 week moving average support and 38 resistance

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