Last night the S&P moved in the target area where I would institute fresh shorts: above 1396 but below 1406. Remember that a close above 1406 triggers a buy signal for a target to 1576 to 1557 - all figures basis cash.

Figure 1 shows the 2 Congestion markets in play.

04-25-2008-313-mktpro.jpg

FIGURE 1 Market Profile

The sideways market bounded by the red rectangle marks the boundaries of the test of the possible bear market.

  • Acceptance above 1404 will temporarily negate the bear scenario and mark the probability of a new sideways market with 1576 the high 1258, the low.
  • Acceptance above the maximum extension 1617 suggests a continuation of the bull market.

The sideways market bounded by the blue rectangle marks what I consider a congestion before a free-fall and breach of 1258. Last night’s price action marked a perfect negative development setup.

We exceeded the high at 1396 by a volume of 97% or less i.e. the volume at 1398 had volume3% or more below the volume at 1396.To complete the setup, we need to see a close below 1384.

It appears that tonight we’ll have an open-gap of at least 5 points (i.e. at least 0.04%). That being the case, we can use the open-gap rule I have previously discussed to effect an entry. I’ll be looking the Market Delta to give me a volume pattern that will lead me to fade the open-gap for a return to the yesterday’s closing price. I’d then be looking for trend day continuation down and will be looking for clues that this is so. If I believe the market will be rotational, I’ll exit 1/2 my position size and reinstate those above volume if the Volume indicates the extremes of the day will hold.

My stop for the fade will be 1406.75 where I’ll look to reverse if the volume pattern favours the move.

I need to see a close below 1384 to hold positions based on the above strategy.

By the way: while I have not spelt out the risk/reward, you’ll notice I have included all the information you’d need to work it out.

Related Posts