Thursday 19 August 2010
We continue to be negative on the S&P, based on developing activity. Price continues to be in a trading
range, but as of Thursday morning, the ease of price movement to the downside may be curtailing the
"life" of this range-bound activity. We have included two 30 minute charts that illustrate the developing
range and how to take advantage of it.
The horizontal lines across the chart are from previous areas that now act as resistance. Note the gap down on the 11th; that day session high was 1101.50. Since, price has retested that level twice in the
past few trading days. We added another horizontal line across the high from Tuesday, and you can see
it was retested yesterday. Monitoring both volume, which had been decreasing on the rally, an
indication of demand participation waning as price moved higher, and price, we were look and waiting for
a weak rally with a sign of weakness to enter on the short side.
The ranges at yesterday's high narrowed, and on the high bar of the day, it formed an Outside Key
Reversal, [OKR], where price makes a higher high, lower low, and a lower close, a sign of weakness.
We acted on that market message and went short, using a 10 minute bar for timing, at 1093 with a
stop placed above the high end of the trading range.
The next chart is an update, and it shows this morning's developing market activity. Price has dropped
on very strong volume. As a money management tool, we look to take partial profits once price moves
favorably in the direction of the trade. We opted to cover half the position at 1075, an 1800 tic gain
from yesterday. We did this because we cannot know in advance if price will react back into the trading
range. We expect lower prices, and that is why half the short position is maintained.
As market activity continues to develop, we know there will be opportunities to add to short positions
for as long as price moves favorably. More set-ups, like yesterday's will present themselves, and we
want to take advantage when they occur.
If price rallies a bit from here, there is less pressure after taking partial profits, and we may be presented
with an opportunity to sell again, higher. If price continues to go lower, instead, we are still positioned
to the short side.
A combination of market activity, rules for trading that activity, and money management tools lends itself
to consistency, over time.
Staying short.
