This post is for Friday’s market September 3rd, 2010 as the market closes strong into the close and sits on major resistance.

That is how it is right now, as the market is sitting on big resistance in the 1100 area.  This is like a self fulfilling prophecy, as this was the likely target area we were to trade to from last weeks markets lows. This was clearly defined in my blog postings with a few warnings to help us keep our eyes open.

We have come all way up to this temporary resistance level and now what?  In Thursdays posting, I had said it would be natural and normal for us to trade back down for just a spell, until a likely breakout above the 1100 area gets taken out. I wrote that just before I saw the new readings on investor sentiment, with my alert at the bottom of the post. Given that development and the fact that the market closed strong into the close for a second day, I would have to give a bias to the breakout occurring right here from this level without the pull back. If that happens and it is looking likely, the next area of major resistance is about 400 Dow points higher and a bit more for the S&P to around 1160. It could be a few points more or less, but this area is where we will likely go to very quickly if the 1100 area is broken to the upside. I would have to give it about 80% likely it is going to happen from here. Either case, if we pull back to the middle of last weeks trading range, I still believe that we are going to see higher prices and that likelihood is +90%.

So, either way, I think we are going higher, which is good news for the bulls and those who want to try and get a better price on their equities. I don’t think we are in a long term hold here, but again, all of this is just my opinion and take it with a grain of salt, so to speak. Their is another level I do see as the next level of resistance and could then be the ultimate trade to level. This could take several months to complete and do believe we do have a pretty good chance for this to occur. For right now, I see it as the most reasonable and likely place for prices to travel and that would be, S&P 1245 or so. It could be a little higher, but this is just a touch light, just in case it comes up short.

Over the weekend I showed my students how I had come up with all of these price targets and projections as so many of them have been right in the past. They may not be right in the future but we can only base our price projections from where we are today and given the current trading environment.

I had showed how I came up with the short term top in the S&P in May of this year and how we were able to spot the March 2009 lows in the Dow exactly. There is nothing out there that is absolute, but we use what we have to give us the best possible projections and go with it until proven wrong.

That is how we are to look to the short term swings within  the trading day. Each day, the market gives us clues as to what it will do next. We need to be able to read the signs and clues and exploit those readings, thus giving us the advantage. We need to have the advantage or trading edge so when we put on the trade, it is not a gamble, but a very high percentage trade. If you don’t poses a consistent statistical advantage, placing a trade long or short then just becomes a gamble.

If a trader does not have a set established trading method that posses a statistical advantage, he is just gambling. That was a hard one for me to deal with at one time, as it brings into play many other moral aspects or trading at all. The only way around it, is to be one of the “investors”, (is a better word) who has done the hard work to bring him or herself to the point that they consistently are able to posses the trading advantage over the other traders who do not see what you see or have done the work.  Having a proven trading method that looks at all of these things is what is needed.

I am a firm believer that all traders need to learn and understand how and why the price moves, or better stated, price action. It is there that all of this comes together. Knowing and having a solid and often unconventional way of looking at support and resistance that is not obvious to the masses, is essential. With that, you will see things that you never knew existed and come to be able to trade any trading instrument in any time frame with a trading advantage.

I don’t often show much of any of this in my blog writings, but on occasion I do show just a little. The market posses a natural rhythm that we all need to be in tune with. Its all found in the price structure of each instrument. I remember a movie called “National Treasure” with Nicolas Cage. In that movie their were clues and signs that lead them and their pursers in the direction of the treasure. The things that were obvious were really of no value, but the unconventional idea’s or signs that kept them thinking and expanding their minds is what lead them to the treasure.

Trading successfully is similar to this. The answer is not always so easily seen. If it is, it will probably not be of very much value. So, we need to look beyond what knowledge you now may hold, to help unlock the secret of profitability. Do not forget we can often be our worst enemy from reaching our goals, so controlling things like greed is essential. That is a hard one for many of us, but we need to ask ourselves, what we want from the markets. To make a steady income or try and get rich as fast we as we can. This is a process that first starts with that question.  What do you say?

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Fridays trading below. I had an OK day, but I did struggle just a little as I got caught up in some slow chop, which caused a few small losses. This could have been avoided by trading the early open, which we saw some easy and obvious trades with good moves tied to them. I was getting a bit tired as the session carried on and did have a bit of indecision on a few trades but I snapped out of it and did pretty good overall. It wasn’t a perfect day, but that is how it turned out, the good the bad the ugly. That is trading. Enjoy the rest of the long weekend.