Despite a buoyant start to 2010, today we saw what could be termed a change of character in the US Markets.   It is at times like these that no matter how good the stock you own is, your stock may get pulled down with the rest of them.  So if we see a pull back, and it is not unreasonable to imagine we will get a pull back, we were due one in December but the Market (SP-500) kept creeping upwards and sideways, how much will it pull back?

Using simple Trend lines and Fibonacci Retracement we are able to build scenarios which allow us to make plans for the future.

Setting Potential Downside Targets

We essentially have 5 scenarios

1. Today’s negative action halts today and builds a base at the intermediate support line
2. We experience further downside action to the medium term support line at 1072
3. We pullback to 38.2% of the July Trend 1045
4. Pull Back to Fibonacci 50, at 1015
5. Experience quite a serious correction releasing the tension of the March to date rally with a pull back to 980.

It has been a great rally since March, but something inside me has to begun to be extremely skeptical.  Do not get caught the wrong side of a power sell off without and stop losses in place.  Do not risk any more than 5 to 10% max on any one trade.  Never make one trade worth your entire portfolio. I believe options 2 and 3 are the most likely to occur, but potentially 4 is a possibility.

Keep your friends close, your enemies closer and your stop losses the closest.

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