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Yesterday the S&P 500 mini futures had bullish price action and increasing volume for a change. When it took back the extended backside of prior trendline support it was "Risk On". If you day trade, and you ignore the key reference areas of the chart, you do so at your own peril. I have highlighted this on the Hourly chart left hand side below.
(Click on chart to expand)
The right side chart above shows the S&P 500 is at the backside of trendline resistance on the Daily chart and one such scenario that is possible is a "blast off" busting through here.
I mentioned in the morning update to subscribers the most important contract to keep an eye on yesterday going into the trading session was the Russell 2000.
When it took back major overhead resistance, there are two things a trader can do, 1) go long, or 2) stay on the sideline. Trading short is not an option. There is minor resistance at the upper extreme of the Balance Area, but above there, the path of least resistance is higher.
Nasdaq 100 exploded through the extended trendline on the Hourly chart (see blue oval), and like the S&P it is at trendline resistance on the Daily. Notice the previously failed breakdown on the Daily at the major trendline and the reaction since.
One last chart to look at that is practically unbelievable is the NYSE NHNL indicator which measures the new 52 week highs minus the new 52 week lows, and it is still lagging or unconfirming the highs.
Here is the Nasdaq NHNL, which is also stunningly lagging and unconfirming.
There are key reference areas, and there are favorable trade locations in relation to the key reference areas to trade from. But most important is risk management.
The swing/position trade model portfolio has had one short in Equities in the past three months and it was in Emerging Markets, which was and is still showing relative weakness, however even that trade had to be exited (at a small profit).
Plenty of opportunities to short may still be coming, and they may be the greatest opportunities ever, but the bottom line is a trader can't fight the tape for long in this business.
Stocktwits and Twitter @ ScottPluschau
Email: ScottPluschau@gmail.com
Source: http://scottpluschau.blogspot.com/2013/04/the-few-lines-of-defense-for-bears-in.html
