«Consider the outcomes.»

Traders,

You don’t often get a picture-perfect pattern in the major indices. But that’s precisely what we have right now. And it doesn’t matter if you look at SPY, QQQ, IWM, or DIA. The question all traders should be pondering now is, “what are you going to do about it?”

Before providing a few answers, let’s quickly review how a bear retracement setup forms. First, the stock must be in a downtrend and have created a lower pivot low with increased momentum. Second, prices rally (or retrace) multiple days back up to resistance. Third, ideally, the rally transpires on average to low volume showing a lack of conviction. Fourth, we develop a reversal candle near resistance as momentum slows. This could be a doji, bearish engulfing, shooting star, or something similar. Fifth and final, prices break a previous day’s low to confirm a pivot high and begin the next downswing.

The fact that the markets are sporting a bear retracement pattern is undeniable. Here are some ideas for capitalizing on it.

First, you might consider taking profits or lightening up with existing short-term bull trades that you don’t want to carry into the subsequent descent.

Second, you could look for new bear trades that will profit if the market rolls over.

There aren’t any guarantees here, and this might turn into a v-shaped recovery where we keep rallying. But the track record of bear retracements has been excellent this year, so it’s worth giving this pattern the benefit of the doubt.

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Video Of The Day: Jedi Options: Bear Call Spread with a Bear Retracement Pattern

In today’s Jedi Options, Coach Tyler teaches what is a #BearCallSpread with a #Bearish Retracement Pattern

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Chart of the Day: S&P 500 with Bear Retracement Pattern ($SPY)

Note the last two candles are showing SPY struggling with overhead resistance at the declining 20-day simple moving average.

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Today’s line up

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