Tuesday, March 2, 2010

Tuesday March 2nd Review: Bears defend the 76% retracement level!

Top chart displays the daily chart of the ES, using retracement levels from the January highs to the 1040 low, bears had only the 76% left to defend. They did a decent job of it throughout the day. Market was unable to break above it, stopping to the tick for today.

Second chart shows the intraday action, after a gap up in the overnight session, we tagged that 76% retrace level on the daily, which was sold into. That level happened to coincide with a range extension resistance level as well for today, so it made for a great shorting opportunity, not once but also in the afternoon into the close as well.

The problem with today's action was simple, we shot up too far too fast. No test of a value area or gap fill, that is why once the buying started to dry up we had to pull back into yesterday's value area to facilitate trade again. As I said, the market is always searching for fair value, where both buyers and sellers are evenly matched, until one overpowers the other the market will then move in that direction until it is met with opposition, and on and on.

Today was the classic example of that, not enough buyers to keep prices up, so we needed to pull back to test value and attract the bulls. However we did end up closing below the midpoint of today's action, and also closing below the Point of Control high value acceptance area for today (bottom chart). That is worth paying attention to as a cautionary measure. Let's see how we trade overnight for clues on tomorrow's price action.

My Bull/Bear line is going to be 1113 for tomorrow, I think we could come back and test that Point of Control and that would still be bullish. Market accepts value below there though, I will be bearish for tomorrow.