Not the best second step...

So, we did not get the follow through that I was hoping for - however today's price action was very helpful in terms of the developing picture. Let me also say that I have been trading very poorly this week and have essentially "struck out" with the bases loaded these last two sessions. The sad part about it is that I had profits in both sessions, but failed to maintain discipline and gave it all back - plus the trading fees. I know that is not what you come here to read, but I had to get it off my chest. Here is the hourly candlestick chart:




So, why was today so important and clarifying. First, for those of you who doubted that we are range bound at the top - stop doubting it. On my charts, the 085ish area is the bottom of a rectangle tat we have been trading within for the last 20 sessions. We touched 086 today - which was good thing. The bad thing is that we bounced up off that level and did not follow through at the retest. So 086 became the LOD.


The 086 LOD. combined with the closing stick helped us to define a down channel on the hourly. This down channel, which is bounded by the thin pink lines (and labeled), is formed from the reaction highs and lows since December 04. We closed with a throw back from that top trend line near the 097 area. (Note I spoke of the 096 area a few posts ago - I believe it will be a pivotal point in this battle).

You may also note that the fib fan blades (resulting from a drag from 12/04 high to today's LOD) show the 50% retrace blade in almost the exact position as this top trend line. This is important as both lines serve as resistance. Ideally, we will see rejection at this point and price action will resume it's channel descent. Unfortunately, I am not so confident. You see, these trend lines and fib blades also represent points notorious for GAP UP. In fact, if you look at the ascent off the last two reaction lows of this top, you will see big GAP moves up. Those gaps happen to align pretty nicely with fib fan blades (not show here for clarity).

Though a gap up is possible tomorrow morning, I would like to highlight the obstacles in the battle zone. In order to move up from here, price action must break the 20p MA, the down channel top trend line, the 50% fib fan blade, and the 38% retracement level of the main fib grid. It is going to be tough - but possible.

Also, a quick glance at the ES hourly chart suggests that we may be finishing a S-H-H-S pattern. We are of course at the right shoulder now - meeting resistance at the 096-098 area. If resistance holds, expect a drop off to the Thanksgiving low of 069ish.




Back to the SPX. A less than encouraging down thrust is on the mirror side of our current price point. This kind of recent price action suggests that the ascent could be rapid to the 50% retracement level near 1102ish - and the 50p MA. If we get there quickly, I would start planning on a test of 1110 - following price action down around the 62% fib arc (look at the mirror side to get an idea of what I am suggesting).

One final note, though fib tools don't always work, they often do. A fib time series suggests that next next reversal will sometime in the morning session. Pure crystal ball stuff! Perhaps we gap up to the 1110 area - roll over and fall back down into the down channel.

I am flat tonight on the futures - still short equities.

Good luck tomorrow.