Back on May 1, I noticed the head/shoulder pattern developing and pointed it out to you guys, so that you could position yourself accordingly should the market collapse. Looking at what the Nasdaq has done between the time it broke it’s neckline and today is quite textbook when it comes to how a bearish market should react.
- Classic gap down violent selling day, falling right through the neckline, leaving many traders feeling uneasy about getting short after the big gap down.
- Selling begetting more selling until the not to be forgotten climactic 2:30 avalanche of sellers.
- Somewhat of a retest of those lows the following day, exhausting all the sellers, and providing the buyers with a perceived value trade.
- Rally to the neckline, but really, last weeks rally was nothing to get excited about, especially when you look at the volume associated with the up days.
- Renewed selling (which is where we’re at now). Yes we could turn around and move higher, but nothing in this chart (divergence wise) suggests that yet.
