Another Analysis: **************** 1. Chart http://www.3stocksonfire.com/trading/index.php?topic=2849.0 2. Prior Day The market was mixed during all morning, going from negative to positive on a narrow range, until, at about midday, the news came out that RITA was downgraded from a category 4 to a category 3 storm. Some short covering hit the market and the rally was able to break the prior day's high, which was 121.66 (I'm going to start talking just about the SPY, what do you think? You just have to multiply the number by 10 to get the SPX (S&P500). Of course, many stops were placed just above Thurday's high and floor traders knew it. They pushed the market higher and those Rita news came just in hand to help them trigger the stops. Stops triggered by shorts took the market higher to 121.89 but once the short covering ended, prices came back down below the ascending trendline (prior support, now resistance as you can check on the chart above). 3. Support & Resistance Supports at 120.38 (low of the Katrina open)/118.26 (prior low with huge volume) and 117.7 (the closing of a gap open between 117.7 and 118.01) Resistances at 121.73 (ascending trendline was support, now it is resistance) and 124.74 (30 month high and the top of a possible double top formation) 4. Candlesticks & Volume The bearish continuation pattern I talked about on the last analysis (Thrusting) was invalidated because the SPX closed above the midpoint of the body of the prior red candle. Friday's candlestick pattern is somewhat inconclusive, almost a doji. I get no indications from candlesticks analysis today. Volume was much weaker on this second advance day. 5. News «Next week brings a slew of economic news for investors to sort through, including reads on personal income and spending and durable goods orders. However, a lot of the reports will cover the month of August, before Hurricane's Katrina and Rita hit. The few September reads due are consumer confidence and consumer sentiment. Post-hurricane reads on the economy don't start arriving in earnest until the first week of October.» CNNfn still doesn't have the list of indicators that will come out next week, but I don't find, at this point, any that may have a major impact on the general market. CBS Marketwatch says Rita was downgraded to category 1, but I guess this was already somewhat expected on Friday, and like I said, since Katrina's open was a low for the market which rallied pretty nicely out of that low for the next 9 days, nobody or not much people were that scared about Rita's impact on the market. Oil prices even went down heavy while the media talked about concern around Rita. So forget about Rita's impact on the SPX, the only thing it can make is a small intraday move because the media just talks so much about it. 6. Overview I said I would go short at the open on Friday and I did, the open on SPY was 121.24. Then my plan was: «On close IF SPY<121.66 => HOLD short positions. IF SPY>121.66 = BUY TO COVER short positions.» Since close was 121.44 I'm still holding to those short positions (actually I trade the e-mini S&P500 futures but the values are basically the same since SPY is the tracker stock of the S&P500). What I believe is that this market wasn't going down because of the hurricane, that wouldn't make any sense when you consider the market reaction to Katrina, which was to rise from 120.38 to 124.74 in the next couple of weeks. The market was going down because investors are concerned the economy is slowing down fast, and the FED isn't helping being so hawkish. The last two days, Thursday and Friday, brought a correction to the previous declines, based on short covering because some people sold because of Rita's hurricane and then they needed to buy to cover, since the storm was being downgraded. After this noise coming from the weather, people will focus again on the future of the economy and the FED policy. Also, the warnings season is kicking in, and Alcoa, Oracle and Palm just started the hostilities. Technically the SPX broke an ascending trendline and then made a retest to that trendline, validating the technical sell signal. Everything seems in place for the market to resume it's downtrend now, but hey, the market always knows better, so I must use tight stops and trade carefully. Here's my trading plan for Monday's session: 7. Trading Plan I'm short at 121.44. I want to see the market go down to validate this position. Since the resistance line I'm considering is an ascending line I can't set it up as a stop level, because since it is rising a bit everyday my stop would get larger and larger in points and dollar terms, and that would be a mistake. So I will use a fixed stop. I consider that if I'm losing 5 points on this trade I was wrong about opening it. So, my detailed plan is this: 1) Put a stop loss order at 121.94. 2) Hold the short position during the entire session if the stop isn't triggered and keep it on close.