I See 3 Scenarios And “A Sharp Sell-Off” Is My Favorite — Here’s Why

The result was a big reversal day for the major indices. The charts went from
wonderful to terrible by the end of the day. The bounce that started yesterday
only lasted a day and a half. This doesn’t change much in my eyes yet. One
failed bounce doesn’t ruin everything. The trend is still up, but it is
definitely sputtering. The next few days will be interesting. Here are three
scenarios I’m on the lookout for that could provide an edge:

1) A continued sharp selloff — Several areas of the market are already
oversold. This would make them extremely oversold and create tradable
opportunities to play the bounce. While scary, this may be the most desirable
scenario as the resulting shakeout could also be good for the intermediate-term
health of the market.

2) An immediate and weak bounce — Watch today’s highs in the SPY and the
DIA (and QQQQ to a lesser degree). Long tails like the ones they put in today
can many times act as resistance. A drift higher on low volume could be
shortable as the indices approach these levels. This would be a short-term trade
with intermediate-term potential should a top actually form.

3) A tight consolidation followed by a sharp break — After the relatively
large ranges we’ve seen the last few days, the market may be in for some quiet
sideways trading before the next move. In this case, a breakout in either
direction could be playable.

Best of luck with your trading,

Rob

robhanna@comcast.net

Rob Hanna is the principal of a money management firm located in Massachusetts.
He has spent the last several years developing and refining methods for trading
in stocks across multiple time frames. He selects stocks using both fundamental
and technical criteria, and then trades them using technical analysis
techniques.