Short Setup...

OK, there is a case to be made for a lower open and continuation of the down trend. I have yapped about the gaps enough, but just to be clear about this case, here is the chart...




There are two gaps (technically 1 gap) that did not fill today. The first gap was at the open. Though it is technically not a gap (in the sense that price action worked across it in the prior session), it is having the same effect. The gap is a narrow hole in the wall between 1027 and 1025. I think we will fill this (even gap down through it) and I will look for the price action to touch or pierce the lower bollinger band. Depending on the open, that could be as low as the 38% retracement line at 1022.5 - which is the first line of support that needs to be broken in this setup. There may be a small pause/bounce here an argument can be made that this is the right shoulder of a S-H-H-S pattern. If it is, the price action should press downward to close the continuation gap (true gap by definition) which is bisected by the 50% retracement line at around 1017.5.

With that in mind a short play down to 1015 looks good yielding 13 pts if you are short going out of the close today. See my earlier posts on this to see how to introduce a long at 1015 as a precaution. (Once continuation gaps are closed, they tend to attempt reversals.) If you do see reversal, add a loose trailing stop to your short with the long. You'll give a point or so up on the short but pick it up on the long anyway. Of course, do not take the long if action suggests strong downtrend continuation. A test of support at 1004 is always a possibility.

Finally, any close below 1023 technically establishes a downtrend.

In my next post, I'll discuss a the Long Setup.