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The breakdown below 1120 on the S&P 500 earlier this week proved to be a vicious trap for eager bears to short the move lower. The setup looked so easy that the idea was to at least for confirmation (a weekly close below 1120) before getting enticed to become more aggressive on the short side. The fact that such false breakdowns can occur even when everything is lining up for it to happen illustrates the power of cash, in that you can maintain your objectivity and avoid taking undue risks in a situation like that.
It is often said that from failed moves come fast moves in the other direction. After the failed breakdown below 1120 earlier this week, the bulls have made a ferocious short-term move back above 1120. However, the week is far from over and the picture is still nebulous. That said, the trap has indeed been set with the head fake below 1120 down to 1074 and subsequent sharp reversal higher.
With two full months of sloppy sideways action under our belts, the rejection of a breakdown should be taken very seriously, even if the bulls do not have ideal swing trading conditions quite yet. In other words, by temporarily losing 1120 for a few days, the bulls may have very well gained the tactical advantage.
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I think this rally is just a head fake…Getting people ready for Black Thursday…I think a large bear move can only come about from a failed bullish pattern/move. Just as you said from failed moves comes fast moves.