This along with the pattern that it has created for Friday leads to a possible meltdown tomorrow or at the very least a fairly strong day of declining prices.
There is a clear warning here when the cash S&P 500 manages a better than 5 point gain, yet the smart money in the S&P 500 futures pit were sellers and finished the day to the downside.
Directly below you will also see the tick by tick display of the put/call ratio and as we have seen all this week, the small investor continues to pour money into the call side expecting sharply higher prices in the near term. This is a very negative connotation and one that typically comes before the fall.
The NASDAQ, much like the S&P 500, formed a pattern today that has some very high odds of producing sharply lower prices the next day.
The Day to Day sequencing pattern calls for lower prices from start to finish tomorrow with a real possibility of a very hard down day. It should prove to be very interesting.
I remain in a very defensive posture with only a 45% allocation to equities and a very keen eye on how this potential decline unfolds.
Aggressive traders can look to get into some SPY puts tomorrow morning providing we do not have a steep gap opening lower. In the event of a lower gap opening, wait for at least half the gap to be filled and ideally all of the gap before purchasing put options. One strategy will be to purchase half your lot on the half gap fill and the remaining if and when we fully recover the lower gap opening.
It is shaping up to be a very interesting day tomorrow, so stay tuned, the party might just be getting started!
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