Last week’s action should not come as any surprise to those who follow us closely. Since the beginning of the month we talked about being overbought, we talked about not chasing the market or stocks, we talked about not reacting when the drive by media was saying WOW the market is up it’s time to buy.
We talked about following the leading stocks and how for weeks leading stocks were selling off – that’s important as it always forecasts how the rest of the market isn’t far behind. We talked about listening to the market and what it was saying. Now you know why we say what we say all the time. And sure enough here we are!
The chart above shows that of being in the zone for a potential turn higher in the coming days. It’s the quality of that bounce when we get one that we are most concerned with.
The reason we are concerned with any bounce in the market is because of the damage that was done to the shorter term frequency charts as shown below. When this sell off started it blew through multiple support levels like a hot knife through butter. This is what happens when the masses are “All In”. It’s also what happens when sales increases matter again, err rather lack of sales increases over the last 6-9 months vs. the “Better Than Expected” buzz word we’ve seen during the most recent past earnings seasons this bear market rally.
There is a good possibility that what we’ve just seen is the first shot across the bow. It’s what happens during all rallies from here on out. We are on the lookout for high quality short sell patterns over the coming weeks and will be spending a lot of time showing you the ropes of those patterns. If you are long only they are a great tool for knowing when to get out. If you are a true opportunist with no allegiance to any one side of the market then they ought to lead the way for profits on the short side of the market.
That said, the First Thrusts Down pattern is the ideal short-sell pattern to be aware of to profit as the market continues its correction.
A few recent examples are below:
That break of the pink line was good for a 10% pop on the short side. Folks 10% is an average annual rate of return in the stock market over the last 100 years — all in 4 days!
That pink line was all you needed to know.
Next let’s take a look at another issue in the gold sector that also bit the dust recently.
We suspect those major trendline break (green lines on the chart above) types are going to start showing up all over the place in the coming weeks.
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