Well…so far my position is playing out nicely. We have been able to execute the planned trades detailed here and entered our short position at an average of 2575.
The short term objective at 2350 detailed here has been met and the market has traded down as low as 2207 before recovering to 2408 as we speak. Where to now….
Well, one thing is clear … we are currently forming a quite clearly defined triangle formation. Contrary to what you will often hear, a triangle formation doesn’t indicate a continuation of the previous move, that’s a flag or pennant formation which looks similar but forms over a much shorter timeframe that what is being played out now.
A triangle is fairly neutral in the direction of the eventual breakout … so the longer term head and shoulders is by no means invalidated … but we do need to look at alternative possible price actions that could unfold.
So first off … what do we do with our existing position… well that’s quite an easy one. After seeing the position unfold as it has I’m not willing to let this position turn into a loser so we will place a buy order to cover the position above 2575. That gets us out of the position at roughly flat if the market rallies and also has the benefit that the descending trend of the triangle will be clearly breached at that level.
As to the downside … I still intend to play the head and shoulder levels so I’ll add to the position if we break below 2150 looking for a significant retracement of the upmove of the last 2 months.
On the upside, I’m not yet willing to commit to a long position until I see how the market unfolds. even if we break the triangle to the upside there are some significant upside resistance levels that need to be considered.
Good Luck and Good Trading