2022-02-21

Worse Than the Worst Case Scenario for Bulls

On January 19, I posted the Worst Case Scenario for Bulls. Instead of rebounding then, it plunged over the next few trading days.
Instead of creating a small H&S pattern with a bounce to 4700, the S&P 500 Index plunged and then bounced to 4500, creating a far larger pattern.
On January 23, one day before the market would bottom, I posted Dreambear Rally is 6 to 7pc. I was looking for bounces in IWM and QQQ that would set up roughly 16-percent declines in those indexes. IWM did get close enough to the green line, while the Nasdaq 100 tracker QQQ is too weak to put in full right shoulder. The downside from the pattern is less from this level, but the QQQ's weakness indicates losses on this move may exceed the measured move off the pattern.
There's always a risk that these plunge-opens produce a rally back. This could still be a double-bottom in the S&P 500 Index. My hunch is that it's a bull trap about to give way to new lows, but if bulls can push it back towards the gap, that would be a more enticing spot to short.

No comments:

Post a Comment