Are Your Crayons Handy?

In Friday's newsletter I pointed out that the S&P 500 was approaching the mid-September highs, and this would be a test. This is technical analysis 101 – can the index break above previous highs?

On Friday's chart I drew a resistance line sitting on the top of the candle body of the mid-September high. I usually don't pay attention to the actual intraday highs. I figure the range where the stock spent most of the day trading is more important, and the body of the candlestick pattern shows that.

Actually, a resistance line shouldn't be thought of as a specific price level. It is convenient to treat it that way when displaying charts and keeping descriptions simple. But it should be thought of as a range. I once read that some analyst said trendlines should be drawn with crayons, not pencils, meaning don't interpret them as well-defined lines at specific price levels.

So if you draw resistance lines at the top of candlestick bodies, Friday's S&P 500 picture shows a strong break above resistance. If you use the actual intraday high from mid-September, the S&P 500 has not set a new high. If you think of it as a range (‘crayon line'), then the S&P is there, but hasn't yet shown it has the backing to rise further.

The stochastics leveling off in overbought territory, and the near vertical rise over 12 sessions, leads me to believe profit-taking, or at least a consolidation will set in for a short period. But unless something significant changes the picture (and ending QE didn't do it), the major indexes are likely to be higher at the end of the year.

In today's Seasonal Forecaster newsletter, I cover an interesting conservative covered call trade setup that offers a 4.7% return over 25 days, including the dividend that will be paid. The trade strategy will allow us to remain ‘in the game' for further rises in the stock and opportunities to sell additional calls against the stock.

Of course, there's much more you need to know and many more stocks you can capitalize upon each and every day.  To find out more, please click on the following link: www.markettamer.com/seasonal

By Gregg Harris, MarketTamer Chief Technical Strategist

Copyright (C) 2014 Stock & Options Training LLC

Unless indicated otherwise, at the time of this writing, the author has no positions in any of the above-mentioned securities.

Gregg Harris is the Chief Technical Strategist at MarketTamer.com with extensive experience in the financial sector.

Gregg started out as an Engineer and brings a rigorous thinking to his financial research. Gregg's passion for finance resulted in the creation of a real-time quote system and his work has been featured nationally in publications, such as the Investment Guide magazine.

As an avid researcher, Gregg concentrates on leveraging what institutional and big money players are doing to move the market and create seasonal trend patterns. Using custom research tools, Gregg identifies stocks that are optimal for stock and options traders to exploit these trends and find the tailwinds that can propel stocks to levels that are hidden to the average trader.

The content on any of Market Tamer websites, products, or communication is for educational purposes only. Nothing in its products, services, or communications shall be construed as a solicitation and/or recommendation to buy or sell a security. Trading stocks, options, and other securities involve risk. The risk of loss in trading securities can be substantial. The risk involved with trading stocks, options and other securities are not suitable for all investors. Prior to buying or selling an option, an investor must evaluate his/her own personal financial situation and consider all relevant risk factors. See: Characteristics and Risks of Standardized Options (http://www.optionsclearing.com/publications/risks/riskstoc.pdf). The www.MarketTamer.com educational training program and software services are provided to improve financial understanding.

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