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Let Charts Be Your Guide, Not The News Media

On Tuesday, reactionary people who don't look under the hood of that shiny car on the lot and just react emotionally to what the drive by media was shouting about how great things were learned the hard way why it pays to NOT REACT without looking at what exactly the market is saying via the charts, they really do give clear signs as to what is going on. Moral of the story? Don't react.

From our weekend article and still in play by the way:

"The full stochastics are still in overbought territory which tells us we MAY still have some downside work to do next week. A break of the Pink line sends us to the blue line and 50 day average rather fast because that move up out of the sideways consolidation took place during low volume holiday trade."

Moving on to the 60 minute charts that have been such a gift these days.

Short term support and resistance are clearly defined by the red lines, If I were to say to you do you know why the market bounced into the close you know what your answer would be right? If you answered because its SHORT TERM SUPPORT you are right.

So what happens if you bought support today and it breaks to the downside? Simple its called a breakdown. If you bought support today a break of that lower red line needs to be your stop loss level, it also means that the index is headed down to the next level of support in the 1115-1120 level. Be Aware. In the chart above can you see why we say that? Because old resistance once broken to the upside ( Dec. 21) tends to become new support and that just happens to be the top blue line.

There's another pattern that may be developing all at no extra cost and that's a POTENTIAL HEAD AND SHOULDERS TOPPING PATTERN (A change in trend pattern folks).

In the chart below you will notice we've labeled what could be a developing (and we stress developing at this point) a potential head and shoulders top brewing. A break of the 1130 short term support (lower red line) gets the ball rolling and starts a right shoulder being built out that would bear watching. Its also at that 1115-1120 level we'd be interested in getting long some names on our watch list. Care to ask why? Because it's a larger support level plain and simple. What else is at the 1115 ish level? The 50 day average is at 1113 that's what. So there's multiple reasons for taking some trades on the long side and we stress trades.

Moving on to the OTC composite

OTC Comp in 60 minute time frequency

A break of 2275 takes us to 2225. Watch for it.


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Disclosure: No positions