A pattern that I very often use either to the upside or the downside is when an important trend line is broken, I wait for the back test confirmation or rejection. With the increased market volatility and the bearish signs markets give with this sharp decline, I see more downside potential as many stocks that I follow exhibit this bearish pattern. They first have broken important support trend lines, back tested them and 2 days ago they got rejected. As I have been pointing out in Twitter (@alexanderyf) I ‘ve been shorting APPLE, JP Morgan, Goldman Sachs, Nike, Boeing, INTEL Corp. During the first leg down I took some profits in some of these shares, couple days back I shorted Boeing, APPLE, Nike and JPM, while yesterday I took profits in NKE and JPM. I look to open new short positions in the above stocks again including INTC, CAT, EBAY, PYPL. My risk is to see the recent highs being broken. This will make me close short positions.
The main reason is give more chances to the bearish scenario of new lows is because I believe APPLE is a leader and it shows the way. Apple has nothing bullish for the short-term and I expect it to push below 100$ over the coming weeks.
$AAPL has broken the upward sloping trend line from 53$ bounced from the 50% Fibonacci retracement and back tested the broken trend line. Price then got rejected. I now expect a new lower low towards the 61.8% retracement.
Below you can see several charts of the stocks that I follow that exhibit the same bearish pattern.
I do not know if the long-term bullish trend is over. I do not know if this is only a correction and the up trend will resume. The only thing I know is that important long-term support levels have broken, long-term bullish channels have also broken, there are bearish patterns being formed across all major world indices and I know that simple trend analysis shows more downside is to be expected. Even if I look at a bullish Elliott wave scenario that we are in a wave 4 correction of the long-term bullish trend, the price formation shows that wave 4 is incomplete.
Concluding, I believe trend has changed and stops should protect short positions in case this decline is only a correction. Until a stop is broken I remain bearish and riding this down trend to wherever it goes. Thank you for taking the time to read my thoughts.