It has been difficult for me to write much on this blog while working on my book on trading psychology. Sorry to those looking for more posts here. I have made good progress on the book, though, and I think the hard parts are behind me, so I’ll try and make a post each weekend. Once the book is complete, I’ll do more.
The S&Ps have obviously pulled back. We saw a lack of demand early in the month (A), portending a pullback. We often see retracements occur in the beginning of the month after end of month pension and 401k funds have been put to use. No demand after this is typical.
We picked up a little supply on the pullback to B, indicating more selling would be likely. This was confirmed by the one day rally after B, which failed to bring out much demand.
Last Thursday’s fall brought the sellers out. We see the widest range and biggest volume in a while. It went right into a known support. Friday, although we see a poor close, had little follow-through and shortening of the thrust.
The market is potentially oversold here. Watch for any further downside to occur on light volume. This will confirm the selling has dried up for now. A rally above Friday’s low can pull the market higher. Significant resistance is located at 1670 and would likely end any rally attempt, at least short-term. It would be a good location to exit any long trades taken on Monday and a spot to look for a potential short opportunity. Although possible, I doubt the market will rally aggressively through this level on the first try. I would expect more testing of Thursday’s high volume first. If the market pushes down and more supply comes in and we fail to hold the 1650 area it will obviously mean a deeper pullback is coming. I think this is less likely, but we want to remain open to this possibility and not become married to an upside bias.
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