Tuesday, August 17, 2010

UPDATE: 12:00pm 1107 Revisted....AGAIN ???????

S&P 500
Last week I mentioned that the structure of the decline would be important in its early stages since it would give clues as to the longer term trend. The markets may have reached an inflection point on Monday. The S&P has declined 50% of the 1010.91-1129.24 range and has produced yet another doji, signaling indecision in the short term outlook amongst traders.
If a rally were to commence at this point the 1107 area would once again play an paramount role in the determination of the intermediate trend. As the saying goes: Once support:now resistance. The 1107 area has acted as a strange attractor to the S&P during the decline from the 1219.80 high of April 26th and will continue to be a pivotal level until the intermediate cycles resolve themselves. (likely at the end of this week or the first week of September)
If the markets were to rally up and test the 1107 area--especially during the next ENERGY DATE window (Aug 18-21) and then decline--taking out Monday's low of 1169.49, then a significant decline is likely going to take place in the near future. If a rally does ensue off Monday's low and fails to approach the 1107 area--perhaps only to the 1099-1101 area, and then turns lower, the market will be sending a strong signal that the internals are incredibly weak and are prone to a very serious decline in market valuation. Conversely, a close above 1109 would raise caution signs about the ferocity of the bear.

U.S. Dollar
The USDX has encountered some resistance at the first of the three Fibonacci fan-lines formed from the recent decline. Once prices enter into the Fibonacci harmonic rectangle traders may have a chance to evaluate the strength of the current rally more thoroughly.

Gold closed above the 61.8% retracement of the June-July decline while technical indicators are not in over-bought territory. Gold should encounter some resistance at the downtrend line emanating from the onset of the decline in June. (currently approximately 1230-1232)
The current price action in gold demonstrates how trading multiple contracts at the onset of a trading campaign gives a trader increased options as to how to manage the constant risk-reward dilemma--better known as the struggle with greed and fear. For example, a trader who initiated their long position with 2 contracts could look to exit one of them as Gold approached the trendline--OR-- exit one contract if prices returned back into the Fibonacci retracement rectangle. (blue and yellow box). Being open to reducing exposure and pocketing profits is an excellent method of protecting oneself from blowing up in a campaign due to greed and lack of discipline--although traders obsessed by greed would likely disagree with this strategy. Two guns are usually better than one in a battle because you get to reload.

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