The action that the market has provided us with over the past few days has been quite troubling for the bulls. We haven’t seen the slightest bit of extended selling since the rally began back in early March – that is over two months ago. So it will be very interesting if investors start getting nervous with their profits and begin cashing in while they are ahead. This very well is a possibility and if such a mentality prevails then the selling will be hard and swift and we will start seeing support levels break and the volatility (VIX) index start to increase.
The S&P is holding support (barely) on an upward trend line, but the Nasdaq which has been in consolidation over the past couple of weeks, has broken down, and future selling could be brutal since tech outpaced the rest of the market indices by a wide margin. In any case, this is the time you want to be tightening those stops and preparing for another potential downturn should it happen. Don’t get me wrong though, we could see the bulls bounce back strong from the wave of selling of late, however, there is no point in being caught off guard – so just be ready.
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Here’s the Nasdaq and S&P charts…