The Fake-Out Shake-Out (FOSO) market

The fade off key resistance levels yesterday has turned into a full-scale rout. I capitulated on my long and quickly yet short. Fortunately, my about-turn paid off and I managed to reduce my losses somewhat. But the damage has been done.

The point of maximum oversoldness is not necessarily a good buying opportunity. It all depends on what has happened before that point. Unfortunately, the market bottomed one week before the point of maximum oversoldness and rallied into, and past, that point. The skews the risk/reward ratio of any swing trade on the long side increases the probability of being FOSO'ed.

The 1183-1186 gap in the S&P is now being filled.