In our April 20th Share Market View we stated
“It’s now the 19th of April and the market is approaching the targets outlined in February. The market is now over-extended and the probability of further dramatic upward moves are limited. Significant resistance exists at 1216 (Basis $SPX) with the market approaching the Fibonacci 1.618 extension of the counter-trend range A-B. In addition the Fibonacci 0.618 division of the 07 high to the 09 low is slightly above the current market price at 1229 (potential area for Stage 3 distribution).”
On the 23rd of April 2010 the market closed at its highest point for the rally (pre flash crash) at 1217.28, one point from our projection.
We are now at the other extreme with the markets over-extended to the down side with further dramatic downward moves limited. We have just completed stage 1 which is the accumulation stage of the market, taking us into the expansion phase stage 2, the beginning of the next upward move. It is important to note that we have entered into a period of high volatility (extremes of price movement). Money management and trade management are of critical importance! Traders should be aware of noteable resistance levels and protect profits accordingly. The first level of resistance is the 0.618 Fibonacci expansion level at 1151 (basis $SPX). The second level is the 1.00 Fibonacci expansion level at 1219 (basis $SPX) and slightly above that is the 0.618 bear market division from the 2007 high to the 2009 low (See chart). If the markets breaks above these two levels we can then contemplate the 1.618 Fibonacci expansion up to 1330.68.
There are an infinite number of trading opportunities in all sectors of the market, both US and ASX. All display excellent risk to reward characteristics. If you are trading ETO’s you should be aware that we are in a period of high implied volatility. Most ETO’s are over-valued and expensive. Options used in high implied volatility environments favour the use of spreads over vanilla bought options.
The prime directive given to all Options21 Mentoring Graduates trading daily charts is to identify the formation of stage one just as we did back in early February, giving us the best opportunity to take timely advantage of the expansion in the market. Once again we find ourselves at stage one with unlimited opportunity.
A complete update of the macro view of the market is given in detail on the first Wednesday of every month in our Live Market Briefings.
Happy Trading,
Paul Wise.