|
PureBytes Links
Trading Reference Links
|
Hi all-
I would like to point out a practical use of support and resistance
using the S&P 500 March 99 Contract that may end up being a conservative
trade.
First, on 11/6, the S&P hit short-term resistance at 1160. Nine days
later, the S&P had penetrated the 1160 level on the upside. One of the
basic tenets of technical analysis is that "Resistance becomes
Support". On 12/3 the S&P's selloff ended at 1160.5. Resistance had
become support.
On Monday (12/14), the S&P closed below 1160, seemingly breaking
support. Yesterday, the market opened higher and continued higher,
taking out even Monday's high. Maybe support held after all. If so,
that would be twice the 1160 level has held. Another basic tenet of
T.A. is the more times a trendline or support/resistance is tested
successfully, the more reliable it becomes.
A conservative trade would be to buy the S&P if it takes out yesterday's
high (1176.5), especially if the market retests 1160 and it holds
again. One place to put a protective stop is below the low of either
today or, if the market retests successfully, below the low of the
retest day. More agressive traders could enter on a penetration of the
high of the retest day or today, whichever is lower.
It is a conservative trade because I am not trying to call the bottom
here. If the market continues to fall, then the trade will not be
triggered. The price action will confirm the trade. The only
"indicator" I used in this analysis is price.
I am not recommending anyone actually execute this trade, I am just
trying to start a discussion on recent market action. I look forward to
your comments.
Bill Bancroft
|