Plan for Trend Following Friday, August 24, 2007

Summary

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ES Resistance at 1479-1484
ES support @1433-1436, 1456-1460

Open gap @1450.5

ES got rejected at resistance just as expected, and I tried to catch that. But ES also bounced off the 1456-1460 support area that I had previously described. I even identified it in real-time. So why did I not take action? I don't know, it could be that I just had a brain freeze, and/or was overly risk-averse.

Anyways, here's something interesting that I noticed on the hourly chart of ES:



After a week of disorganized movement in the overnight market, yesterday's overnight market was unusually organized, organized enough to display a nice looking rounded top.
The 1456-1460 zone is quickly becoming a key "make it or break it" area. The bulls worked hard all week to break above that price level. If we break below that zone, and stay below that for any significant amount of time, we will likely see a few more days of downside.
I think we will see another test of the 1456-1460 support zone tomorrow. I'm not sure how far up it will climb before the drop back down, so I will be looking for a reversal somewhere between 1470 and 1480 and hopefully have enough courage to ride it down to the support level.