Upon extensive review of the charts of various global stock indices, leading sectors & market leading stocks of the US stock market, it appears that risk-to-reward profile for short equity trades is rapidly diminishing & could quickly shift to the long side within the next week & possibly as early as tomorrow or later this week.
While the risk of a sharp & swift selloff in the stock market remains substantially elevated at this time, based on my analysis, the potential downside in the near-term (days to weeks) of approximately 3-5%* at this time is overshadowed by the potential for a sharp counter-trend rally of approximately 7%* (*from where the large-cap indices closed today).
To be clear, I am not stating that the correction off the early October highs has certainly ended today nor that the market is flashing green light to reverse from a net short position to an aggressive long position but I do believe that the risk to remain net short & especially the R/R for new short positions on stock with a high correlation to the broad market is no longer clearly favorable at this time & that the risk-reward has actually shifted towards the long side as of today for the first time in months.
As it is quite late here, I will follow up with charts & additional analysis tomorrow. I will assess the price action in the broad markets & the remaining active short trades in order to decide to leave the final price targets as is, modify them or close them out early. I am also narrowing down my watchlist of potential long-side bounce candidates in addition to bounce targets level for short entries on both existing & recent short trades as well as some new swing short candidates as I suspect that he next counter-trend bounce, as impulsive as it might be, may prove to be relatively fleeting.