People with shorter time frames would probably be looking at in-day charts (5 min., 30 min., etc.) to scalp short trades but for me personally, I need to see breakdowns of key support or intermediate trends and then preferably, bounce backs to test these breakdowns. So I want to put up a few charts illustrating where things currently stand.
SPX has now taken on the character of a double top and the breakdown points would be the March and April lows. So if the bearishness were to continue and lose the 2330 area, a bounce and retest of that area would be the classic spot to try a short (assuming you trade from the bear side, otherwise cash is king).
NDX took a hard impaling and looks like it is in no man’s land. It can drop all the way to 5400 and still be in an uptrend. Handily, there is a gap right there to be filled. So again, shorter-term traders are all over this but for me, it is probably just an avoid and potential future buy (or short if a setup presents).
SOX also got harpooned and looks to fill a gap. A drop to 1000 +/- looks likely and the 980 to 1000 area is key support. A loss of the April low could be a ‘short and hold’.
Now it gets interesting. Not only have Treasury bonds bounced around, they look like they are taking another leg up (with the contrarian bull view long gone now), which means interest rates are dropping again. This leaves the Bank index in a vulnerable pattern with the April low being key. If we make a weekly close below 87.80 this sector could be a short targeting 76 (using KBE, KRE, XLF or other ETFs, including leveraged).
I make jokes about Dow theory, but this breakdown in the Transports is not a joke. It is a bearish index as long as it sits below the March low. So is it a routine test of the SMA 200 (red) or is it a bear setup? The weekly close could be telling. It looks like a top to me. Another bear setup could be a snap back and hold of the March low with a shorting point being the declining SMA 50 (blue).
Small Caps are going sideways in a now fairly ugly pattern. Again, the March lows would signal a breakdown. And if this thing breaks down it could have a long way to fall.
We are all different investors and traders. Some subscribers are shorter-term traders than I am and others are longer-term investors than I am. For me, what I want to see in a bear phase is something I can trade and hold for longer periods. I am simply not very good at the whipsaw stuff because I don’t sit and watch the market’s every twitch all day long.
So my preferred longer-term tack would be to be able to short the US market, be long the gold sector (which is acting nicely inverse lately) and go with it. But the markets have not yet pivoted to that condition, despite this week’s angst. I am also watching Europe and the global picture (maybe we’ll have an update just for global in the near-term) for potential buying opportunities on this disturbance.
One thing not noted above is the potential for this initial break being met with an immediate bounce back (pending this morning’s negative futures), which could be an opportunity to short as well. Much to decipher in the near-term, but at least things are in motion and that is a good thing. Whether we bounce and whipsaw or not, it appears that a corrective process has started. That sounds like a ‘Captain Obvious’ statement, but given the inflammatory Trump news one could read it as just a sentiment hiccup. Yet the market has needed a real correction and yesterday looked impulsive with some key indexes now forming pretty bearish patterns.