The trend is your friend...

So, step back from the news for a moment. I mean yesterday was black monday, today we are in full bull mode again. You can't rely on the news at face value. The fact is that the market is a machine - complex at times - but for the most part predictable - if only in hind sight!

Media aside, we are in a downtrend which started on August 7th after an intraday high of 1018. Until we see evidence to the contrary, the downtrend continues and the swing trade should align in the same direction - down. Counter trend trading is hard and can be dangerous, and I have never met a person that can call an exact reversal point.

But you may ask "How can you say we are still in a downtrend - the market rallied 82 points today!" Well, despite recent behavior, markets are supposed to move up and down in the context of a trend - oscillating as the forces of supply and demand do battle. This is how we get "channels" and "top line trends" and "bottom line trends". Simple, I know - but amazing how quickly good positions are abandoned at the first sign of counter trend movement. Take today for example everyone who was short through Monday covered today.

Let's look at the charts. First take the action over the last two sessions. A basic fib grid from Friday close to Monday low shows that todays price action rose to and bumped off of the 50% retracement line. In fact, when you examine the last 2 hours of trading, the push from the 50% line was forceful relative to the upward pressure. Also not the negative divergence in the MACD histogram and the price in the late morning early afternoon hours (price rising MACD levels descending). And how about that down trend in the RSI? The most bearish read is if 987 is breached tomorrow we can see a full reversal of today's retracement and a test of the 979 level.



Blown up for your closer look:



Now examine the chart over the last 10 days. Note the fib fan from the high on the 7th to the low yesterday. We are right bumping around the first fan blade. If we get forced down from here, we will see more downside short term. A less bearish view may be that a test of 995 then 1001 (the next two fan blades). If these are breached to the upside, it would be wise to consider the possibility of a trend reversal. One final note, the fib grid on this same chart does not line up todays price action with the 38% retracement level. I needed to see 993, but it just didn't happen - despite several rejected attempts.



Now the blow-up:




Happy trading!