Home > Short-Term Trader > Bears Look To Gain Control This Week

Bears Look To Gain Control This Week

On Thursday, I highlighted a head-n-shoulders pattern in the SPX and COMPX. Friday's high volume sell-off went a long ways towards confirming this ominous pattern. It was the third distribution day while carving out the formation.

Volume 

To further strengthen my bearish bias is the weekly engulfing bar giving U.S. markets the lowest weekly close in three weeks.  Call the back-to-back candlestick pattern what you want, "Kings-n-Queens", "Marubozo" (Japanese lingo), or "Bull-Market-Bitch-Slap" (Paul's lingo). To be certain, this is a harbinger of a market changing its path of least resistance.

Engulfing pattern 

Once a break occurs through the neckline, assuming it does in fact break, the levels to watch are 1170 -> 50 day EMA, 1165 -> 50 day SMA, and then 1150'ish -> Click here. Should the market hold the neckline the possibility exist for a triangle to take shape, however; this seems unlikely given the current news-flow and technical damage already in place – Multiple distribution days, weekly change in direction, and weak posture of the financial sector. Financial names, upon examining the chart of the XLF etf, have made three lower peaks and are ready to lead the market lower. Even if the triangle were to come into play it would likely be of the topping variety due to the before mentioned reasons.

Xlf 

I began a bearish campaign Friday morning and will look to get more aggressive through the neck-line, which is the lows from Tuesday (SPX 1181, ES 1177). As long as the market doesn't trade above the right shoulder I will maintain a bearish stance and look to reassess as we move lower towards the projected 1150 target. As always, any questions or comments please feel free to email me at paul@macro-trader.com.

Position Disclosure: Currently short the June ES contract.

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Categories: Short-Term Trader
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