In last week’s column, we walked through a profit taking scenario in the Russell 2,000. As you can see from the chart below, the market reacted strongly to the green zone I had highlighted for profit taking, and is now reaching up to confirm the recent top as forecast.
Price may chop near the highs here, but yesterday’s bearish engulfing pattern suggests that a secondary peak has been reached and the proprietary 3D Apex Trading Methodology indicators are showing an expansion of bearish power in spite of the recent “wiggle” back to retest the highs. I would expect to see price retest the recent lows, then would base my market forecast on the power readings at that point. If they continue to build to the downside, then I would expect a breakdown to new lows. If we instead see a test on diminishing power, it would predict that we are beginning to form a channel, and this would get me out of this market until the next trading opportunity.
As mentioned in last week’s column, I have been watching the oil services sector for an entry into a “Head and Shoulders” reversal pattern for some time. The bearish engulfing pattern I wrote about did indeed confirm itself last week, and now I am waiting for that pattern to “set up” by trading below the lows of lost week. This has yet to happen, so I am stuck in wait-and-see mode as this market digests its recent reversal and builds bearish power for a move to the downside.
Bo Yoder
3D Apex Trading
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