Finding a short entry point in the stock indices

click charts to enlarge

We definitely thought this would be of interest especially to stock index traders.

We are writing this at just before 2:00 pm Central Time.

What we have been following today is the come back rally in the stocks and the charts above show that these major indexes have retraced the Fibonacci .618 pct from their high made Wednesday Sept. 25 to their lows since the highs were made. For those who might believe the timing is correct for short entries, especially following the reversals of last week, we believe this may be useful.

There was holiday type volume today with the celebration of Yom Kippur. And it is possible that it provided just the setting for a rally opportunity following the key reversals of last Wednesday. What it does for the traders looking to be short is to provide a potentially lower risk entry level for their short positions. It would seem to us at least, that new highs above those of September 23 would suggest that the timing for short positions was inappropriate at this time but this rally today has brought the entry level to a more reasonable risk reward position.

In the Dow Jones Industrials we show the high of Wednesday the 23rd as 9918.00. The low of Friday the 25th was the lowest price since the high was made and we show that to be 9641.00. The .618 Fibonacci ratio value of the high to low we calculate as 9812.00 and today’s high as of the time we are writing this has been 9823.70.

In the S&P 500 we calculate the .618 ratio to be 1065.26 where today’s high has been 1065.13 and for the NASDAQ 100 we calculated the .618 as 1730.15 and today’s high we show as 1733.79.

Good trading to all

Jeff Majer
Diego Pilar

CB&S Division of MF Global Inc.

Futures and options trading contain substantial risk of loss and may not be suitable for all investors.