Last week’s price action left the scribblings of Mr. P.O.S. Market at his most devious on the daily chart. The intraday high on Friday completed a corrective pattern that could easily be taken for a double top. But who would be crazy enough to go home short over a three-day weekend when stocks have been rising eight days out of ten? And yet. I told subscribers nonetheless to take a few puts home, just in case. The completed upward correction is not all that is tricky here.
The low of the week appears to have touched the green line, signaling a potentially important sell signal for the psychotic run-up since March 31. But if you look at it with a magnifying glass, you discover that the low did not quite trigger a sell signal: for in fact, because the 7354.19 trigger price must be rounded down to 7354.00, the low actually missed touching it by 0.25 points, or a single tick.
If I were in a gambling mood, I would have jumped the gun and shorted the crap out of Friday’s high, especially since I’d predicted it. But if I am doing this strictly by-the-book, the short becomes more speculative, hence the recommendation to take home just a handful of puts. However, if the futures fall from the get-go on Sunday and continue down to the green line, I will do whatever it takes to establish a short position, even though it will be more difficult than if I’d placed my bet on Friday, when the rally looked far more menacing to shorts. Because there is such a long drop to the target at 6796, fear and greed will make it a, um, real bear to get short after this brick has begun to plummet. Stay tuned.