Plan for Monday, Aug.20, 2007

"Strong discipline 90% of the time is not enough because that last 10% of impulse trading will kill you."
- Dan Fitzpatrick

"Do what it takes to sit and wait until the low hanging fruit appears"
- Alan Farley

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ES Resistance is at 1458-1462
First level ES support is at 1442-1446, next one is 1427-1434, and the last one is the gap fill support @1420-1424.

It would seem to me that we have two opposing scenarios that could develop.
On the one hand, we have not had a meaningful test of Thursday's rally. A 50% retrace of the run up from 1376 to 1460 in ES would be around the 1418 level. So, any sustained move below the 1415-1420 zone in ES would pretty much mean a test of the 1380 level is in the cards. It only becomes a question of whether we get that test in one session, or will it span out over 2 or 3 sessions.

On the other hand, SPX is still in oversold condition even though the 2 days of rallying has alleviated that a little. The dead cat bounced for 3 days last time, so there's no reason why it can't bounce 3 days again this time as well. If that scenario plays out, a break above Friday's HoD @1460 would set the stage for a run-up to the resistance @ the 1478 - 1480 area.

With Monday being an Options hangover day, I am leaning towards shorting at 1458-1460, since that corresponds the (approximate) location of the 200d SMA on SPX. But shorting there could get tricky since we could see day3 of the dead cat bounce. So I would need to see a confirmed reversal and clear breakdown before going short - there's no sense and a lot of risk in being the early bird.