I hope you were on the right side of the trade today. If you were one of those that were shorting the market and didn't have a stop in place, I feel your pain. If you are one of those that sold your long positions prior to this rally and feeling you have missed an opportunity to make some big profits or to have avoided on taken some losses, I know exactly how you feel. I have experienced these feelings many times in the past, and they are not very pleasant. But, through the years as a student of the market, I have learned the hard way on how to minimize having these feelings by having a trading plan and having an anticipation on what to expect from the market (notice I didn't say 'avoid' because I still get caught up in the moment and violate or ignore the good trading practices and get trapped into these market events on the wrong side of the trade from time to time.)
If you have followed my blog, you probably already know my trading plan and my market anticipations. I have said in this post that I am keeping an eye for a countertrend long trade on GLD, and in this post I have stated what are my anticipations on the market. If you haven't been following my blog, then I highly recommend you to read those 2 posts before continue reading this post.
Now that you know which scenario the market has decided to play out, here are my anticipations on where the market might encounter resistance and potentially offer the opportunity to set a trade.
As you can see from the chart for the Dow (INDU), it has broken above the trendline today. To get some idea where the Dow might encounter resistance and potentially revert back into the primary down trend, I applied the Fibonacci retracement between the high made on 9/19/08 and the 10/10/08 low. From the Fib retracement, it gives possible resistance levels around 9621, 9721, 10,182, and 10,837. Using traditional classic technical analysis, one can also extract these resistance levels from previous resistance and support levels, and they are near 9260, 9794, 10,365 and 11,100. As you can see, both technique yielded similar levels.The following charts show the Fib retracement for the SP500, NASDAQ Composite, NASDAQ 100, and the Russell 2000. I will be watching how the market react when it reaches any one of these levels for signal to go short on the market. Of course, all these resistance levels will become irrelevant if the market decided to simply turn around and head down to break below the support level established by the 10/10/08 low. Then the other scenario will be followed for shorting the market. So until the market give a signal that it is on its way to make a new low, the question remain, "what now O'Dow."
