The 38% retrace level appears to have repelled the advance of prices and we have gotten a sell signal on the stochastics and the candlesticks.
With these two factors in mind, we need to remain alert to an area to repurchase the stock for the next leg higher. The most logical spot to look is the 50% retrace level of this entire move higher which comes in at $16 1/2 and also matches the level on consolidation before the last sharp leg higher.
Keep your powder dry for this one.
The markets swoon lower today was hardly unexpected as it appears the corrective mode has officially begun.
The stochastics have coiled below the 80 level which confirms the intermediate term down trend. Don't forget also that the week on a seasonal basis has a strong possibly of being sharply lower.
The daily pattern I talked about yesterday was almost completely on the ball with the exception of the open. The market moved sharply lower into the 11:15pm time and then consolidated until the 1:15 time frame where it made another thrust lower. The low was made almost on cue in the 2:30 to 3:00 pm time frame and we had a nice 8 point snap back rally. Not quite 50% of the decline, but a nice trade able rally just the same.
For tomorrow, the daily pattern calls for a continuation of the decline for the early part of the day, followed by a very strong rally back to even and perhaps even a positive close on the day. Wednesday has the potential to be an excellent trading day on both side of the market. The pattern is as follows.
A flat open followed by lower prices right off the mark.
A choppy move lower with some very volatile swings from 9:45 to 11:00am. These swings could be quite lucrative for the ultra short term scalpers so if this is your poison then have your weapons ready.
This early volatility lower should lead to a fairly straight move lower from 11:45 to 1:45pm.
From 1:45pm to 3:00pm, look for a choppy move higher.
3:00pm to the close should see some very heavy upside action as the market moves its way back to unchanged or even a shot at an up close on the day.
So in a nutshell, Look to short from the open and hold until 1:45pm
Then cover the shorts at 1:45pm and go long from 1:45 to the close.
Of course these times are just estimates, but watch your trading tools around these times for a potential confirmation to this outlook.
The chart above shows the break of the wedges bottom line so based upon this occurrence we should see some follow through to the downside followed by a rally attempt back or close to the bottom line. This should be followed by another move lower this time a very strong move lower.
This pattern should be a very good guide for short term position traders.
Intermediate and Long term traders should continue to remain defensive in the face of potentially sharply lower prices in the near term.