Traders can begin building in some "key" action levels that may provide trigger points at resistance as stock try and put in some type of relative low.
The S&P 100 Index (OEX.X) 421.50 +1.00% may have a key resistance level near-term at the 427 mark, and a move above that point could see a rally build to 459.
As noted in the past, this index exceeded its bearish vertical count from its point and figure chart at 425. This week's relative highs have been 426.21 (Monday) and 425.62 (Thursday). By setting a retracement bracket with a resistance level just above, traders can begin to look for a potential upside level of resistance should the 427 level be achieved.
S&P 100 Index Chart - Daily Interval
With many "rumors" flying around in the markets regarding SEC investigation and even today's rumor of U.S. troops being killed in Afghanistan, many traders will keep and ear to the ground to try and understand what type of news may be impacting the markets, but when it is all said and done, many times its certain technical levels of resistance and support, when broken that will dictate shorter-term moves.
As such, its helpful for traders to be using some of the benefits of point and figure charts to understand risk/reward, and tie those in with their bar charts.
I like the above retracement on the OEX.X as it does show some correlation with historic trading and ties in with the past bearish vertical count of 425 (at the 61.8% retracement level). By setting my 61.8% retracement level at 426.42 (just above a short-term level of resistance) I can set a trading alert at that level with my q-charts program.
By "right clicking" my mouse (when cursor is on the retracement), a pop up window will appear as the entire retracement bracket is highlighted. By then "left clicking" the mouse on "add alert" I've automatically placed some trade alerts on my trading workstation at all those levels.
With the S&P 100 Bullish % ($BPOEX) from www.stockcharts.com at such oversold levels of 10%, I've got more of a bullish bias. However, since the bullish % is so weak, I want to see a break above the 427 level or 61.8% retracement to have a bull targeting the $450-$460 range for any type of extended rally.
Retracement way below at 372 helps me understand that I need to trade some type of stop if a bullish trade is taken. Under current market conditions, the most room I'd give a trade in the OEX right now is under Wednesday's low of 405.
Look for some aggressive bears to be shorting at current level on a risk/reward play with tight stops just above 327.
This type of thinking, based on retracement, gives us the perspective that tensions may be high right here. The bullish % hints that bears carry the risk right now and may run for cover on a break above 427.
Keep an eye on those Treasury YIELDS early Monday morning. The bond market is closed now, so traders have little help from the bond market to get a feel for cash flows. However, bulls are looking for some selling in Treasuries, combined with a break above 427 in the OEX.X to fuel a move to the 450-459 range.