Recommendation: LOOK TO SELL SHORT
Current Trend: Up on all main timeframes, but overbought.
Strategy: Sell short a reversal week down, or aggressive traders to short a reversal day down from 2540.
Chart Setup: The S&P broke out to the upside to confirm a small head and shoulders continuation pattern, which we showed last week. It reached and exceeded its upside target. It’s raced up sharply to also reach line 2 resistance of a large channel with line 1. Right now, I’m looking for a one to two day pullback and then another small leg up, as drawn in. And then the long-awaited correction to begin.
- Its short-term Stochastic is overbought and giving a negative divergence, pointing to a drop to come.
Strategy Details: Sell short on a reversal week down. However, aggressive traders can sell short on a clear reversal day/candle down after the minor drop and retest of the high (as drawn in). (It is risky though because it will be going against the current uptrend).
Target: Minor pullback then a retest of the high of this rally at or above line 2 (2536-2540). Note, the most conservative short signal would be a close below line 3. (Line 3 is at 2508 on Weds 4th and it’s rising by 3pts per trading day thereafter). Once the short is triggered, look for a drop to 1491 to take half profits, and more at 2477.
Stop-loss: A close above the high of the current rally. (After the short signal is triggered). From 2491 lower the stop to a breaking of its prior two-day high.
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