Off the Charts

Major U.S. indices closed in the green today, recovering a portion of yesterday's sell-off that was the sharpest since November. The Dow posted the biggest gain, surging 0.84% due largely to the strength in Home Depot (HD) after its earnings report. Strong housing and consumer data numbers this morning helped boost sentiment and distract investors from the looming sequester. Congressional testimony today from Fed Chairman Ben Bernanke today also came off as more dovish than the recent Fed minutes, which revealed the more hawkish leanings of several Fed governors. Gold, which sold off on those aforementioned Fed minutes, posted its biggest gain of the year in response (SPDR Gold Shares (GLD) +1.22%).

The two-way action continued today. After opening higher the S&P (SPY) very briefly went negative below yesterday's low of 1487 before bouncing into the close. When the market encounters turmoil, it's best to adopt a more cautious, short-term approach if you are actively trading. We talk often about using the prior day's high and low as pivots to trade against in these types of environments, and we got a perfect example of how to execute that strategy today. The low from yesterday of 1487 became a tactical counter-trend pivot when we traded below it and then back above it. The entry is on a break back above 1487 and stops are placed at today's low. The strategy didn't lead to an explosive move today, but simply a minor cash flow-type move into the close....726 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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