As discussed yesterday, yesterday proved to indeed be a false reversal type move off the neckline of the head and shoulders top. That does not mean the market cannot still bounce from here. However, once a head and shoulders top breaks the neckline, a solid pattern will not typically see any close back above the neckline. A back-test up toward the neckline is very common and may be expected with how oversold some short-term indicators are. So from a traditional charting standpoint, that is what we should be watching for - does price hold below the neckline on a closing basis?
The short-term models of both the S&P 500 and Nasdaq are oversold after today. When this occurrs, it will often lead to a bounce in the market, if only short-term. So from my vantage point, we should expect the market to bounce without much further decline. If it does not, and price continues to fall, that should be a clue about the market's (lack of) strength in the coming weeks.
In sum, there are several short-term oversold indications, but in my view it is too dangerous to attempt a short-term bullish trade here for the blog. For a very nimble trader, I would certainly think you could go for it if the indicators look good and you have a sensible stop, but I want to stay focused on the very high probability trades for the blog so that perfect timing is not necessary to make a good trade.
It is still a little bit too early to put a stop in on BGZ right now I think. After a good deal of patience, it has come our way, but not enough to create a breakeven scenario with very little risk of stopping out on an otherwise good trade. While for short-term traders it is hard not to exit at a time like this, all indications are that the intermediate term trend has shifted down, and that the biggest portion of the gains are likely ahead of us yet. So the intent of the trade has been and still is to go for a bigger gain and begin honing in on an exit when the target area I showed yesterday is reached.
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