Direxion Daily Small Cp Bear 3X Shs Overdue for a Pull Back

I think we have seen the lows of the first leg of this panic for now.  The volatility in the market was unprecedented this week and admittedly the close today was not the nicest looking close one could have wished for.

However the market has come down in almost vertical fashion and I expect it to transition now into some type of bearish rising wedge pattern or perhaps something similar into the time frame of May 23rd to May 27th.  At least for now that time frame is the potential trigger for when to go short again or go long the TZA.  But of course I am going to have to re examine the situation as the days roll on.

The market will likely be very volatile and confusing in the final part of the ascending broadening wedge formation and identifying the turning point for the next down leg will not be easy but we will give it our best shot.

I cannot rule out the possibility that the nature of the upcoming bounce will be very weak.  But we will just have to wait and see.  The market has already shown us how ‘non supported’ it is on the way down.  Whether that remains to be the case on a reaction rally up is unknown at this time.

But it is very clear to me at this point the message that the market is signaling.  The action this week was a very significant sign of weakness and all but seals the case that a new longer term decline is in store.

Had the decline been more orderly and labored then it would have had a much better chance of hinting at a more modest consolidation and then eventual new rally highs.  But for now that does not appear to be the case at all.

The Direxion Daily Small Cp Bear 3X Shs ETF is an extremely volatile beast and I would not be at all surprised to see it at 6.5 again or maybe even lower on a good enough reaction up in the Russell 2000 and rest of stock market.

It should trade in a congestion range in the yellow shaded area on the chart below:

tza20100507

After any stock or index makes a final bear market bottom it is not at all unusual to see very deep price retracements because the previous trend was so strong and in force for a long period of time.

The move that TZA made showed a real sign of strength and at this point I have to conclude that it is the first launch of a longer term uptrend.  But first as already stated the TZA needs to pull back a bit and get a consolidation going before the next leg higher.

The best scenario for the stock market would be for it to trade higher in a rising wedge formation that weakens out in a price peak on low volume.  To identify it we are going to need at least 10 to 15 trading days of price work.

So for now wait and watch mode appears to be the best strategy…

Posted in Index Trading, Market Timing, SP500
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