Tuesday, November 11, 2008

Dropping like a rock ...

Past Days
Well my friday trade setup worked out perfectly. We had our short rally, then retest of the 900, then the large rally and the pull back just as anticipated. I traded after my own recommendation and had what looked to be a perfect entry for a nice run. However, after the trade had played out we hesitated and were not able to reattempt a decisive break on the upside. As mentioned you need to be aware for change and this is exactly what occured - the hesitation and narrowing around the 922 range was a clear sign of weakness and increased the risk by a substantial amount. I exited my position with no gains which was a wise move - after my exit we got the whiplash I was talking about and jumped by 20 pts in both directions towards market close.

From our Monday top and last week we are now yet again in another pattern. We have formed a decending triangle that is looking for a break on the downside. Rallies to the upside at this point should be short lived and correct itself within hours with no more then a 20 point move. If we are to violate the pattern we need to see a decisive break of the 930 range, if that were to occur we can move up further.

Time and Price
Of course our ever important 900 range, this could manifest itself anywhere from 907 down to the 895. If we are to reach 895 expect a bit of support there of course.

Next numbers on the downside are 891 and 875.

Mid Term
I am still confident of the lows for the year being in but signs are showing more weakness. We need to evalutate the action in the next few days with great care. If we are to create new lows we will see a fairly strong run down that will find its bottom right at 764 - yes thats a lot of points.

How to trade this?
Today a short term trade on the downside presents less risk as we are in a bearish pattern formation. We have clear upside boundaries to adhere to - those boundaries for the current pattner are around the 930 range, a break here would violate our decending triangle and go higher.

As we are opening low I would hope for a bounce of the 900 range (907-895). This should find its top at 912 or possibly the 922 range. Depending on volume and momentum the 912 would be my first short entry at 50% , expect a small retracement back to 907 and a possible re-attempt at the 912. If we are to break wait for the 917-922 range to enter the other 50% on the short side. Your average price could be at 915-916 depending on entry giving you a great position for a run down to the 895 range.

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