Before your next trade, check this chart

Charles Sachs has utilized S&P 100 for the past 14 years, both as a trader and an advisor. He uses 24 proprietary indicators in order structure options strategies which can generate gains whether the market moves up, down or sideways.

Financial markets traded unchanged Wednesday with the (XEO | Quote | Chart | News | PowerRating) (S&P 100) index trading up .02 of a point to the 566.83 level.

The short-term market trend is down, and the intermediate-term market trend is up.

In the chart below, we see a daily bar chart of the S&P 100 index. Each bar (or line) represents the daily trading range for the index. There is also a little horizontal line to the left of the bar which represents the opening price of the day for the S&P 100 index, and a little horizontal line to the right of the bar which represents the closing price of the day for the S&P 100 index.

We also see in the chart below two blue lines, which are called channel lines and are parallel and rising. These lines tell us financial markets are in an uptrend (since they are rising) and that prices should find support (buying interest) at the bottom channel line, and resistance (selling interest) at the top channel line.

Looking at yesterday's trading, we see that the bar furthest to the right (of the S&P 100 index) closed at the lower blue channel line. If the index closes below this channel line today, then this support line would be breached and set in motion a more sustained decline phase. Conversely, if the support line holds, we would then expect the S&P 100 index to rise in price by heading back to the top of the channel.

Bottom Line:

Due to uncertainty in financial markets, holding one's capital in cash is presently recommended. While financial markets remain in an uptrend, as evidenced by the chart above, a close of the S&P 100 index below the lower channel would lead to an accelerated downtrend.

From a longer-term perspective, if support on the S&P 100 index holds, and it rises from current levels (around the 568 level), we would then recommend taking profits, or undertaking short positions for the more aggressive trader at the 577-585 resistance levels.

Sincerely,
Charles Sachs
Chief Options Strategist