Many markets have opened the year strong and taken out resistance levels .The S&P is trading above the 50% retracement at 1121,for example. Apple has broken out above its old high and for those who bought, a stoploss could be placed 4 points below the breakout level.Under Gann's rule a valid breakout should not retrace 3 points below the high.Amazon has been weak and seems to be respecting the square of 9 setup,with two highs present on the chart now.Gold is rallying from the 1070 support area.
The question for me is whether we are seeing genuine breakouts or whether we see the same pattern as last year when many markets opened strong and peaked in the first or second week of January (subsequently bottoming in March) Rising wedge patterns also make me cautious(as for instance in the Marks & Spencer chart).
For me the dollar chart may hold the key and I think continuing dollar strength from oversold levels may undermine the equity markets before long.Bank share performance may also be critical as some are showing possible top development.However for now the trends are up and I would watch the 1 year cycle from Jan 09 highs and 6 month cycle from July lows,which are clustered closely together, for signs of a reversal and breaking back below resistance,which would be a strong signal to sell.
(see for example the Dax charts posted earlier.)
Selling call options with a strike price above resistance levels might be a valid strategy as I think markets will struggle to sustain rallies from here .(eg March 6200 Dax calls or 5600 FTSE calls )
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