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Volatility continues this morning; however, traders still seem to be playing important technical levels.

Starting with a daily chart of the Dow, notice how the 50% retracement level of the move from October to December is coming into play. The blue chips are also trading on its lower Bollinger Bands. This has bearish implications, and the next objective remains lower at 7902.

Chart of the Dow, 720-minute

Does this 7902 level match up with the daily pivot analysis? 7902 is still below Support 2 for the Dow. The pivot levels in the Dow are as follows: S2= 7948, S1= 8040, Pivot at 8204, R1= 8295, and then R2= 8459. Since these are pretty wide levels, a trader can do one of two things. Use a retracement between R2 and S2 (7948 and 8459) or fitted retracements to get levels that may work better for a trader looking to play today's volatility.

Looking at a 30-minute chart of the Dow, notice how the blue chips never tested today's pivot, and has remained well contained between the 8040 and 8129 area for most of the session.

Chart of Dow Jones, 30-minute

To go to a even more micro level, a trader can "fit" a retracement analysis around the first five minutes of trading. This is done by anchoring the 100% at the top of the period, and then "fitting" the 80.9% level as the bottom of the first five minutes. This will produce the following chart.

Chart of Dow Jones, 5-minute fitted retracement

The key really is to see what levels line up; thus increasing its significance. On the downside, it comes back to the 7950 area, while on the upside there should be resistance still from 8120 to 8129. If a five-minute bar CLOSES above this range, I will look for the next level above (today's pivot) to be hit. Only a move back under 8120 would nullify this line of thinking.

John Seckinger

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