Trading With An Expectation

There is a gap on the S&P cash index at 1353.39 that will likely get filled today.  Yesterday's action left a clear expectation for those of us who trade price: the S&P made a new low then bounced up to a perfect 38% Fibonacci retracement level then fell into the close.  Beautiful action.  The expectation of such a move is that price will then continue in the direction of the trend (in this case down) and complete another down leg equal to 1 to 1.618X the previous leg (in this case targeting 1318 or 1300 respectively).  Therefore, to see the futures up strongly this morning constitutes a failure and calls for a new expectation.

Trading with an expectation and a price target keeps me ahead of the market instead of reacting to it.

With futures up, what is the new expectation?  The gap fill.  Also, the gap at 1353.39 is very close to the 61.8% Fibonacci level of 1354.56.  So perhaps the market will take out two birds with one stone.

In the larger picture, the S&P is sitting on a much bigger 38% level measured from the December 2011 lows that is acting as support.  This larger Fibonacci relationship trumps the smaller one at work in the current down move.  This is why I have continued to hold and trade call options at these levels against my short position and have been looking for bounces while keeping in mind the potential for much lower prices to come.