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The initial stop would have been at $82.88, which was below the 61.8% support at $83.37 as well as the $83 level. The approximate risk would have been 3.2%. It was also below the low of March 17 ($83.22). which the candle shows was a strong up day. Both orders would have been filled between March 27 and March 31 when the low was $84.40.

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The Spyder Trust (SPY) made a new rally high on April 7 and when this high was exceeded on April 22 (point 3) the stop would have been raised to $85.82. This was below the previous swing low. On May 5 when SPY closed at $93.03 the stop could have been raised to $87.86, which was just under the mid-April low.

As I have discussed in the past I favor closing out part of any position when I can get a decent profit in a relatively short period of time. This, of course, reduces the risk to your portfolio and also has psychological benefits. To determine the profit taking levels I use a combination of Fibonacci and chart analysis.

In this instance the 127.2% retracement target was at $91.42 but the chart suggested that SPY could move back to the December 2002 high of $96.05. The 100% or equality target could be calculated using the net change of the initial rally from the March lows ($10.50) and adding it to the late March low of $84.40

This gives you a 100% target of $94.90, which is noted by a red line on the chart. It was hit first on May 12 and would have been a reasonable level to sell half of the position. SPY did move sideways for several days at this level before correcting.

For more on Fibonacci targets see “Profiting From Fibonacci Entries and Exits”

By May 28,  SPY had moved to new rally highs (point 5)  and the stop would have been raised to $91.29 (red line), which was below the prior swing low as well as the May 2 low.

The 161.8% target at $101.39 was hit on June 6 as the high was $101.40. After a one-day pullback SPY again closed at new rally highs on June 12 (point 6) and the stop could have been raised further to $97.33 (red line). As it turned out SPY peaked three days later and the stop was hit  on July 1 (point 7).

On November 1 in The Dow’s Most Overbought Stocks there were several stocks, which showed very positive monthly technical patterns. One was International Business Machines (IBM), which had overcome ten-year resistance in 2010. At the end of October (line 1), it closed at a new three-month high, suggesting that a new uptrend had begun.

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