Crash possibility

After some rest, i reconsidered the news releases, and macro issues.  Reconsideration of charts, in view of the macro risk analysis outlined in the prior post revealed a new outlook. Given the technical support levels outlined in the prior post,  a breach of critical support level is due this week.  Take a look at the chart below and the highlighted oval areas.  Here are the salient features i notice from this chart.

• Whenever  the support or resistance line in this zone is challenged in 2011, market has reacted very sharply in the days ahead.  The reaction in the days ahead  was strongly positive when it happened on Feb 1st, March 21st and october 14th.  But there are more incidences when the reaction was strongly negative, within days, upon break of the upper end support of this mid zone. 
• This chart creates the possibilty of a drop to 1160 within days, and increases the probabilities given in the prior blog. 
• The chart also tells us NOT to panic in the event of a crash day. Why ?  Because, it also tells us how to react to such a crash.  Controlling  emotions on a crash day is a critical part of trading successfully.
• How can you control your emotions ? By knowing a high probability event that is likely to follow in the event of a crash. Notice that, in each case, highlighted in the chart,  either the midpoint or the upper end of the crash day was tested within days.  So, this gives us a great way to play the volatility of a crash in both directions.
• It also reminds me that as long as i control my risk with moderate position sizing, i can endure the number of days that i need to endure to play the reversal test.
• It also reminds me that if  i am aware of the chart  comparing 2008 to 2011, predicting a turn  around  end of November/start of december,  then big institutions would know this type of analysis too.  So, the major turn around could be initiated with a drop, followed by a subsequence buy reaction in december. 
• The chart  gives us high probability support lines underneath, as i still beleive that we are in a bullish trend since october 4th, going into end of the year, as outlined in the blog with spx targets from institutions.  World leaders could step up anytime, to support markets, and market is not likely to go to 666 within weeks.
• If the scenario is to unfold, then we should see further decline of ES on monday. On the other hand, if there is a rally on monday, in the face of negative news, that would signal that the week is likely to head higher from the support area. So, this chart tells us how to prepare for a move in either direction.