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Market shake out or in trouble?

Today the market got beaten down by worse than expected earnings reports. This can be a temporary over reaction as we experienced many times during previous seasons or it can be a significant game changer turning the markets back to south. Which way the markets will go? It depends on many factors. Let’s take a look at it from the technical analysis perspective and let’s keep it simple.


From the chart above we can see the market SPY being in a formation known as a flag. Typically it is a consolidation pattern and it is considered that if you enter into this pattern from bullish perspective, we will most likely resume the trend from which we entered.

However, today we broke down from this pattern. That can signal two things to me. We are either experiencing a shake-out when weak hands will be gotten rid of their positions in panic selling and the market resumes, returns into the pattern and continue running up. All the weak hands will be rushing back in moving the market up.

Or we are at the beginning of deeper trouble, the consolidation pattern fails and we will see further downtrend. How deep can we go in such case? Currently we are at the 1.st support level, if we break it, we can go as deep as $138 mark. Time will show.

For me this is a great opportunity buying more shares of my holdings such as Abbott. I moved my buy point lower yesterday and since today the price dropped even lower, after today’s closing I will be moving the buy price even lower (buying cheaper). My new buy point for tomorrow will be at $65.93 per share.

Now let’s wait for the next move.

Happy trading

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