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As suggested in yesterday's post, the multiple time frame momentum set-up in SPY was ripe for a decline and it appeared that a complex corrective pattern abc-x-abc had complete yesterday in price and time.
This morning's gap down is supporting evidence. The blue rectangle shows the price and time box of the most recent "c" wave. After a pattern completes, the psychological price logic/evidence is confirmed by a complete retracement of the most recent trending move in LESS time than it took to form. We very nearly met that guideline on the gap down opening this morning.
Also note that the gap down today broke the uptrend line of the whole move since Aug 24th. This is pretty common of a breakaway move.
So any upwards price action from here would be expected to be minimal (maybe a back test of the broken trendline in the 198-199 range). So using short term stochastics to time a short entry would probably be wise. A 5 minute overbought stochastics would be my recommendation. Any stop on a short currently needs to be above yesterday's high in my opinion. Profit potential based upon historical comparisons may be to about 177 on SPY. The would be about a 127.2 retracement of the rebound since Aug 24th.
Pete
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