Trading Rules Collection: Key Support and Resistance Levels

Posted on May 29, 2012 by Jan Arps' Traders' Toolbox

Hawk’s Scan Sentry Report May 28

It’s “Memorial Day” here in the USA, a time to celebrate our fallen soldiers. So, to all of those brave and conscientious men and women who sacrificed themselves in the cause of the American Dream and to their families I tip my well worn hat. I pray that your sacrifices are not in vain. I share your dream that this nation can fulfill its goal of promoting the general welfare of its citizenry and securing the blessings of liberty to ourselves and our posterity; and that our government can effectively represent the voices of its human constituents (as well as all the other natural beings within our boundaries that have no voice in politics). The markets that we trade, however, are completely global. The universe of stocks available on the American exchanges is starting to resemble the melting pot which describes our our citizenry. As far as I can tell, the greenback is as blind to race or other affiliation as our government and justice system are supposed to be. Again, thank you, veterans, for the sacrifices.

So what are we looking towards for this week’s trading in these markets? Friday’s close generated a nice Trend Exhaustion 1 oversold signal on the weekly chart, which also shows a bullish Pullback 23 signal forming. But, before you get too bullish, notice the orientation of the Triple Trender… it’s completely bearish. Also note the very weak Radar3 Trend Strength and Radar1 Fear/Greed indications. I wouldn’t be surprised to see a bullish pullback this week into the Triple Trender and test of resistance around 1360, but I would be very careful trading the ES long beyond that level.

Take a look at the daily chart of the same S&P index futures contract. All of our primary trend and sentiment indicators are very bearish and have been since April. Again, this market would have to close above the long-term Trender at 1351 and and resistance at 1359 before I would consider holding long positions more than a day or two.

On the other hand, the previous low of 1287 on May 21^st was close to a 50% retracement from the rally which started last Thanksgiving. The actual midpoint would be 1275 which is also a significant resistance level from October and November last. On the bearish side I would not be surprised to see a test of those levels.

So you’re probably saying to yourself, “Hawk, are you bullish or bearish?”. The answer for this week is that I am expecting to see this market trade as high as 1360 or as low as 1275. And although we could see a breach of these levels I, for one, will likely be looking for fading opportunities when the price reaches those points. As always, I will attempt to be a humble servant of the price action; and right now the market mistress is not showing all of her cards.

Below is a sample of some of the stocks on my watchlist this week and why they are there. If the indicators on these charts are unfamiliar to you please follow this link to a legend which describes each of the tools on the charts below.

_____Longs_____

DSW

(A breakout from congestion which synchronized the Triple Trender bullish. Also note that the Radar1 Fear/Greed is making significantly higher highs.)

IOC

(Another breakout from the trendline and congestion with Radar1 making higher highs. Note that Radar3 Trend Strength is now bullish as well as the Triple Trender. )

SPRD

(Here we have a combination Pullback 23 with a Trend Exhaustion 1 Oversold signal. Also note the continually weakening selling pressure in Radar1 Fear/Greed since mid-December.)

_____Shorts_____

EEP

(A pullback into a bearish Triple Trender accompanied by a Pullback 23 Trend Exhaustion 1 Overbought combination.)

SLW

(Pullback into the Triple Trender with a TE-1 Overbought signal. Note that we still have a little ways to go to complete our Bear Flag target projection.)