Bulls got sandbagged yesterday, trapped on an opening-bar short-squeeze that fell 40 cents shy of the 29.57 rally target we’d been using. Longs might have exited on a stop near 29.03 if they heeded the 1:3 risk reward ratio I always advise holding constant over the life of a trade.
So what’s next for the stock? My hunch is that it will be back with a vengeance — loaded for bear, as it were — but that it could take a while before bulls recover their nerve. Indeed, the wicked selloff from the 29.17 intraday high amounted to an 8% price drop in mere hours. It’s tempting to speculate that it happened for no good reason, but clearly, too many traders had grown too bullish. Those of them who survived could take comfort in the fact that the selloff left a couple of ‘external’ lows on the hourly chart undamaged. That could change today with more downside, but until such time as that happens we should infer that this move is merely corrective rather than the beginning of a protracted period of pain.