On 02/21/08, the market found resistance at a previous resistance area, and trended down all day. In the top chart above, notice how the NYSE Advance - Decline Line formed lower highs as the ES futures market tested previous pivot lows. A characteristic of a downward trending market.
In contrast, the bottom chart above shows the ES market forming a base in an area of previous support. As the ES market tested pivot lows, the NYSE Advance - Decline Line formed highs lows, indicating that selling pressure was decreasing in the equity market forcing the futures to form a base of support. Not shown on the chart is a rapid uptrend into the close of the market.
In the Base Forming Scenario of the bottom chart, you should consider liquidating short positions.
Charles
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