Broke Trend...

By far, the most difficult thing to do as a trader is to sell at a loss. Unfortunately, we all have to do it when it is the best interest of the portfolio. Yesterday, I wrote an entry about levels. I'm glad that I did. While writing the entry I was studying my model of the SPX. I noted that the past two sessions saw upward penetration of several resistance levels. Those included:

1. The lower fan blade
2. The middle fan blade
3. The 38% retracement

The action rested arount the the 50% retracement mark, hugging the upper fan blade. Going into today, my concern was continued up trend and breach of further resistance levels. I decided that a breach of the upper trend line (at around 1007) would be enough of a signal for me to reduce my shorts by 25% and take a hedging long with SPY and DIA. Well, we had a breach and I took the actions - though it felt painful.

Here is a view of the main trend and levels:



Here is a blow-up of the breach:



At this point we will likely have a test of the 1012 and 1018 levels. By reducing my shorts and taking a long, I can maintain a bit of stability in the portfolio and analyze the action when the index tests the top.