Looks like the 50% Fibonacci retracement did the trick yesterday as the stopping point for the partial rise within the Ascending Broadening Wedge pattern. While the 50% Fib was one of the likely reversal points & more aggressive short entry levels mentioned in yesterday’s video, today’s gap down was the “conventional” short entry as the reversal & apparent move back down towards the bottom of the pattern had begun. The expectation on the partial rise short trade is for an immediate breakdown or relatively brief pause at the bottom of the pattern before continuing lower. Depending on one’s entry & trading style, a stop can be placed either above yesterday’s highs or lower.
As far as targets, personally I’m looking at this as the potential to morph into a longer-term swing short trade as we’ve already seen the small & mid-caps breakdown below key daily uptrend lines & the large caps ($SPX, $COMPQ, $NDX, etc…) are very close to doing so as well. I talked about the charts being “stacked” in the video, meaning that a simple breakdown from this 60 minute pattern could likely be the catalyst for a break below those much larger, more significant daily support levels, thereby triggering intermediate to longer-term sell signals in the equities market.
Here’s a quick look at the 60 minute chart of the SPY (which is breaking below the bottom of the pattern as I type) as well as the 2-hour chart of the QQQ, which has now fallen to a relatively significant uptrend line generated off of the mid-April lows. Therefore we have a breakdown on the intraday SPY chart with the Q’s at support and pretty much the same for each on the daily time frames (see $SPX, $COMPQ, & $NDX under the Live Charts page). Any solid break & especially a solid close below those daily support levels will likely usher in additional selling in upcoming days & weeks.
Bottom line: If you did not already short the partial rise, then it might be prudent to hold off now as we are at key uptrend line support on the Nasdaq and only trading slightly below uptrend line support on the $SPX daily. Another decent intraday thrust and/or a solid close below would be the next objective short entry at this time. Also keep in mind that we have been in a period of unusually low volatility for months now and with the Bollinger Bands pinching very tight, the odds for a very quick & powerful move, most likely to the downside IMO, is quite elevated at this time should the large cap indices break those daily & especially the weekly support lines.