The market action today followed the script almost to a tee as it offered an excellent day trading set up with a very strong pre-opening market on a day that had some very high odds of being a down day. It is these types of set ups that offer some very low risk entry points and a fairly stress free trade.
Currently it looks as if we should finish our counter trend rally this week after the textbook pullback today. There are several measurements that signal 1385-1390 basis the S&P 500 cash as a very strong level of resistance, including the 200 period moving average on the hourly chart.
Short term traders can look to play this potential rally as it offers about 35 points potential, but as always, be very careful on the long side as anything can happen in a bear market such as we are currently in the midst of. Probability dictates one more move higher to the 1385 level before we continue our move lower but long positions here must be made with true levels of caution and very tight stop loss levels.
For those intermediate term traders that have yet to either establish a longer term short position or hedge their equity holdings, consider the move back to 1385 as yet another gift as the next move lower should be quite a bloodbath and one that should keep the masses perplexed as to the reason or nature of the decline.
Long term traders should continue to exercise the same level of caution that has been warranted since the start of this bear market and keep a very conservative equity allocation of no more than 35%.