The fact that the futures made their engineered low on feeble volume Sunday night is about as surprising as the outcome of Greece’s referendum. The selloff  was purely a reflex — institutional traders bowing to the reality that the news, whatever it might portend, could not possibly be bullish. Even so, by recouping nearly the entire loss by day’s end, traders may have convinced themselves, at least for the time being, that Greek’s bankruptcy will be a non-event. Their devil-may-care attitude may come back to haunt them, however, since no one can predict how things will play out. For our part, rather than assuming that a felicitous state of tedium is about to return, we’ll treat the stock market as though it’s in a potentially very important topping process.  It’s possible that breadth already has topped, by the way, within the very narrow time window that my colleague Peter Eliades had predicted.

From a technical standpoint, the steep decline from the June 22 high of 2122.00 created a strong bearish impulse leg on the daily chart (see inset). Its ‘D’ target at 2023.75 will remain valid unless the current bounce exceeds the point ‘C’ high of the pattern, 2079.00. Yesterday’s short squeeze came close, but we’ll wait and see if it sputters out before we start treating the bearish target as a done deal. A fall of that magnitude would be equivalent to about 600 Dow points.  In the meantime, a short to at least 2041.25 (p), or perhaps p2=2022.50, looks more promising to me than any bull trade from these levels. If the futures rally to, or slightly above, 2079.00, look for an entry opportunity in the form of a minor, downtrending ABC pattern (i.e., a camouflage-style trade).  I like the odds because any feint to 2079.00 would be a great place for a bull trap. _______ UPDATE (July 7, 9:13 a.m. EDT): After topping in the dead of night at 4 a.m. (surprise, surprise), the futures have fallen nearly 14 points to a so-far low at 2064.50. If anyone took the short as I’d advised, please let me know via email or in the chat room and I’ll establish a tracking position for your further guidance. There is potential overnight profit so far of $650 per contract, so you should cover at least half here. _______ UPDATE (11:05 a.m.): Subscribers are reporting short positions from near the 2077 high, so I am establishing tracking guidance. I’d already advised covering half near 2065.00, which would leave two contracts with a profit-adjusted cost basis of 2089.00. Cover an additional contract (from an originally assumed four contracts) near 2029.00, my current target using this pattern: A= 2083.25 (6/29); B= 2034.25 (7/5).  ________ UPDATE (2:58 p.m.) The selling dried up at 2035.00, when the futures reversed direction and recouped the entire day’s losses. There are many ways to have stopped yourself out, but if you didn’t, I’d advise doing so now for a theoretical profit of about $1,000 per contract. The rally was 100% short-squeeze, and I seriously doubt it’s going much further.