The Long Play...

Last night I spent more time analyzing the short play - assuming that we will eventually close the continuation gap at 1018. I maintain that this gap will be filled - it is the nature of continuation gaps. The issue is, it doesn't always happen right away.

I did not do a thorough analysis of the long play. Based on the futures market firming this morning, we have to look at resistance levels and determine good points of entry on the long side (or short depending on the action).

To do this, we start with the intraday chart from yesterdays session.



Here is the detail:



On the large chart we see the fib fan - slightly adjusted to reflect the close. As you can see, we closed just above the middle fan blade - in a coil. Coils carry tension, they represent indecision and when the unravel, they tend to explode. To measure how much of an explosion, you have to trace back to the trend preceding the coil and measure the vertical distance. This happens to be the 1031 level. This blows through the last fan blade at 1027.

So how strong is the 1031 resistance? I see four points where 1031 served as support before it broke down. Technically, the more times the level served as support, the greater the resistance. However, volume needs to be considered as well - and yesterday was not a big volume day. So, we have to assume that this resistance may not be enough to hold back a strong rally.

Breaking 1031 reveals 1033. This represents a very important test. If we are turned away at 1033, then breach 1031 we are back on that slippery slope. If we break resistance at 1033, a test of 1036 is inevitable.

So, a setup could be long from 1031 to 1036. I would wait to enter this setup until after the open settles. A gap up in the morning may quickly fill which would be consistent with the exhaustion wave.

A more conservative setup is to go long at a breakout above 1036. This signals a continued rally and forces us to view the market from a higher time frame.

Anyway, that is the long play.

I still favor the action of my prior post - but we have to remain objective and work with the market - not against it!