Wednesday, October 12, 2011

Stocks Test Resistance

Stocks were up again today with the S&P now testing key resistance. You'll notice the market put in a doji formation which is an indication that the S&P may sell off or at least consolidate. If you look carefully at the above chart you will see that this Doji formation has identified some of the recent tops we have seen over the past few months.

The stochastic oscillator is also in the overbought zone which has coincided with previous tops. Over the past four months we've seen this oscillator go into overbought territory 5 times and each time the market sold off.

When you combine the doji forming at key resistance with an overbought oscillator, this may lead to a down turn in the market should the S&P take out today's low. I may consider a short trade tomorrow if I see weakness come into the market. My protective stop will be right above today's high.

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