a quick update to the bull-trap scenarios that i was covering a few weeks ago.  as highlighted before, the leading index ($NDX/QQQ) has given solid confirmation for a bull-trap with a break of the bearish rising wedge pattern followed by a break below the previous “bullish” breakout to new highs.  currently, the $NDX is re-testing that level from below where prices will likely be rejected and turn down lower soon.

 

 

however, i had stated that we would not have an “all clear” short signal until the broad indexes ($SPX & $DWC, which are more diversified than the $NDX) also break below their own recent “new highs breakout levels”.  as you can see from this $SPX chart, we did get the first two of the three criteria that i was looking for:  an impulsive move back inside the wedge following the wedge overthrow and then a breakdown below the wedge.  since then, prices fell right to that “new highs breakout level” where they found support and bounced to re-test the wedge.  i favor prices turning down soon here as well but this index just shy of breaking out to new highs again and i could easily see one last thrust to do so, popping the stops, before prices reverse and continue lower.

finally, the $DWC (wilshire 5000) basically mirrors the action in the $SPX in recent months; same rising wedge overthrow followed by an impulsive move back inside the wedge.  prices then broke below the wedge, tested the previous new highs breakout and have since bounced to re-test the wedge from below.  again, once/if the $SPX & $DWC join the $NDX in confirming a bull-trap by breaking below those recent new highs breakout levels we will have a confirmed sell/shorting signal.  however, like the $SPX, the $DWC is very close to breaking out to another new high, which will most likely draw in new buyers and spark some short covering.  if that does happen, we’ll have to assess the market action and charts at the time to determine whether or not it is likely to stick or not.