Swing Trading Short Using ProShares UltraShort S&P500 (ETF) (NYSEARCA:SDS)

April 27, 2015, 15:02 pm ET, BY Thomas H. Kee Jr- Editor, Stock Traders Daily| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

My underlying positive bias is premised on longer term support levels remaining intact, they were tested a few weeks ago and thus far they are holding, and although these longer term support levels are increasing every day in line with the upward sloping nature of the trendlines they are still intact and therefore my underlying positive tone remains firmly rooted.

However, that longer term underlying tone is one that reviews longer term channels exclusively, and governs trading strategies using those longer term channels accordingly, but when we step back and review the near-term and the midterm channels something else comes to light.

Specifically, the S&P 500 tested its midterm resistance level perfectly on Monday and that was a sell or a short signal according to rule.  The trading signal was not one intended to govern longer-term strategies, but swing trading strategies instead, and our observations tell us that the market is capable of declining by about 1.5%, maybe slightly less, from the tests of midterm resistance in the S&P 500 that occurred early on Monday morning.

As a result, trading strategies that are designed to take advantage of the downside move in the market were something that could be entertained when that resistance level was tested and confirmation levels began to surface.  One of the most logical instruments that could be used to achieve this objective is ProShares UltraShort S&P500 (ETF) (NYSEARCA:SDS), an ETF that is used regularly by Stock Traders Daily, and something that we may own from time to time depending on where our strategies tell us to be positioned.

In addition, this is something that my managed account clients were holding at the time I wrote this.

Our objective changes as the trading channels change, but immediately, given the tests of midterm resistance in the S&P 500 our technicals are telling us to expect the market to inch lower before continuing to increase.  So long as longer term support remains intact our underlying bias will remain positive on a longer term basis, but on a midterm basis our combined analysis signaled lower levels when the S&P 500 tested midterm resistance and that level held.

Support and Resistance Plot Chart for

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