Sitting Still Can Be Profitable

All the newcomers, get your core short position together. We are over 50% of portfolio short, only UNG long, and 25% will remain in cash. The other 25% will be added as/if the SPY breaks below the $104.40 area. You can use the shorts I listed of actual companies, be aware that if they have a dividend and you are short when the go ex-div, you will be responsible for paying that quarters dividend which usually is not a big concern of mine.

I still prefer using the ETF UltraShort/3x Bear, but make sure your risk management accounts for the leverage.

If you are new to the site, this is the plan so make sure you have a decent short position in place because the break  of $104.40 could come very soon. Look at these two charts of the DOW

See any similarities? Look at the dates at the bottom of the charts, they are both the Dow-30

With all of this in mind I thought I'd share a little of tonight's Worden Report with you,

"Strong, Purposeful Selling

With fear of holding over weekends, Fridays have suffered the frequent effects of trader trepidation, with Mondays providing bounces. Friday last was a horrendous day. Bulls and bears alike probably expected today would be a bouncing Monday.
       However, it was not to be. There is too much shell-shock underlying the action, and the market was in the midst of a downside resolution on Friday. Today, we got a continuation of the slide, although the market may be ready for a mini-bounce before the end of the week."

I don't think I could have said it any better. If you are in position, then you need to just be patient and let your positions work for you. If you are new, you need to look at the ETF's I have on June's list and consider spreading some funds around in each of them, that will give you broad market coverage.

When we come to support at $104.40 a few things could happen, we could see some consolidation before slicing through it, the market may just make a huge move down on big volume through it, we could see a bounce before seeing downside below the level or least likely, the market could set off another rally from there and form a right shoulder in a H&S top formation, in which case we will take action to hedge shorts, jump into longs and wait for the final reversal. However, I'm thinking we will see a repeat of 1929 as posted above. The downdraft after the break of support on the 1929 chart is not visible, but it moved down 30% within a few weeks and within the next couple of years dropped another approximately 85%. Read my post at Trade-Guild, "How to make more than 100% in a Short"

I don't know where we are headed but I have maintained for over a year that this market will see new lows. If you are new and need help or have questions, let me know and I'll answer ASAP.

I listed a few decent shorts tonight. Most of these are pretty far from the stops on purpose, it's in case we get a bounce to resistance, then they all would be excellent add-to candidates.

When looking at the spread sheet remember I list the trades and put in the entry prices, I do not follow up after that. For instance, the trades of 6/2, a few made money, most didn't trigger, but the post for that night says specifically the are 1-2 day trades so whatever gains or losses they show now are irrelevant. *I CANT KEEP UP WITH EVERY TRADE I LIST, IT IS YOUR RESPONSIBILITY TO EMAIL ME IF YOU NEED CURRENT INFORMATION ON ANY TRADE YOU TAKE WHICH WOULD INCLUDE AN UPDATED STOP AND TARGET. I OFFER YOU THIS AS PART OF THE SERVICE FOR FREE SO TAKE ADVANTAGE OF IT AND EMAIL ME. I HAVE OBJECTIVE STOP SYSTEMS THAT WILL TAKE THE MOST OUT OF THE TRADE AS POSSIBLE.

ABOVE ALL, IF YOU DON'T UNDERSTAND OUR RISK MANAGEMENT PLAN, AND IT IS POSTED BELOW A FEW DAYS BACK, THEN LET ME KNOW AND I'LL HELP YOU.

Update

Well it looks like the false breakout repercussions in the NASDAQ took precedence over anything in the SPY.

I hope you newcomers took my advice last night and got your short positions together.

Here's why the NASDAQ situation exerts such a strong downward gravitational pull. When a stock or an average makes a breakout of a consolidation pattern, all eyes have been on the support and resistance level of that consolidation pattern, a breakout is considered by many to be a bullish even and it used to be a fairly reliable bullish event. Now that Technical Analysis is so mainstream, Wall Street knows exactly what everyone is looking at as well. It's like playing cards, but Wall Street can see yours.

So the average or stock breaks out, a lot of buy orders are triggered and a sense of "I don't want to be left behind" becomes overwhelming to many, so like sheep they follow and chase the breakout, this is why breakouts generally see high volume, not because Wall Street was doing a lot of buying. In fact they were more likely doing a lot of selling to those who were buying. A day or two above former resistance (now support) and it's time to let it fall and become a failed breakout, we see them now more than ever, but traditional technicians keep buying them making it an easy poach for Wall Street.

When prices fall below the breakout level, all that volume that represented buyers, now represents holders at a loss so a few with risk management plans start to sell, that creates downward pressure, which makes more sell as their losses mount and before you know it, you have a snowball effect. This is why false breakouts fail hard and fast.

Now things get much more unpredictable, which is why I had you get into your shorts a little at a time a while back. The market's volatility could bounce us, but we just saw a decent divergence fail, that's why I didn't say but, I said buy at trigger "A" and/or "B". However, now everyone expects volatility so maybe the market throws us a curve ball and just slices through all resistance. YOU KNOW WHAT TO DO THEN

The SPY's relative strength vs the QQQQ

Two Paths

Not it appears we have a bottom formation in place, which fits with my analysis. The breakout of the formation is at $107.25 on the SPY, the breakout to new highs is the $107.65 level on the SPY. The breakdown of the formation is below $106.25. Whatever long you use and I suggests a leveraged long ETF, you may want 1/2 @ the formation breakout and 1/2 @ the new highs breakout.

A Successful Retest? Yes?

And it looks likely to pass? Yes it does.

1 min, 3C v.II showing the level of the retest which has become an important level for the near term outlook. 3C is showing a leading divergence

a 3C v.III 5 min chart again showing a leading divergence.

Finally 3C v.III in 10-min, is showing another leading divergence suggesting the $107.50 area will be broken.

A good play on the breakout if it occurs will be to ride UPRO until we get a reversal, it shouldn't be a very long trade, a few days at the max and possibly today at the min.

You would enter UPRO if the SPY breaks above $107.65 and a stop would be around $107.20.  You may want to cut your exposure to 1% risk as this is a fairly tight stop.

Update

It appears we will get the retest of this morning's highs. The call on early strength was correct, then it was a bit of a mystery, but I said I thought Wall St. would try to take this market up (volatility-shake out the weak hands) and possibly re-enter the flag before letting it fall. If the retest is successful and breaks out, you could probably ride an Ultra/3x long up for a day or so, just don't be deceived about what this really is.