The stock market is weak and every move higher is immediately sold. Today we created a lower high which is a significant signal of a trend reversal.

Tomorrow we may see a bounce up higher – I expect the market to bounce up to 2107 level, but then we may see a renewed selling pressure. The market may then fall all the way down to 2050 level before it bounces up again. The renewed selling may happen on Thursday and Friday or next week.

If we bounce tomorrow up, I will take this as an opportunity to unload some of my bullish trades which are currently endangered by the market selling.

Here is my expectation for tomorrow:

As you can see today, the market smashed through all supports and stopped at the lower support of the channel. This put the market into an oversold territory and we may bounce back up to the previous day high which was at 2107 level.

If that happens, then we will be unloading our short term bullish trades, mainly our bull put spread against SPX 2095/2100 even though it will be at a loss.

What if the market won’t bounce tomorrow and will continue in a downtrend?

In that case I will be reversing the trend into a bearish debit spread. This reversal will most likely be a losing trade. But it will be a lot smaller loss than if we just plainly closed the trade now.

Or another option would be reversing the trade into a call spread. This will all depend on tomorrow’s price action.

What is the short term outlook? Here is a chart showing that the market clearly lost the momentum and is once again in a selling mode which will most likely continue:

As you can see, I asked a question whether we bounce or continue higher. Yesterday, it still was unlikely that we would bounce. Today it is clear that we did. This is a potentially dangerous game changer. If we continue lower, then we created a lower high and that may cause the market changing into a distribution phase.

Here is yet another view on the short term trend showing a first alert of a short term trend reversal. Note that this is a short term trend (1 year, daily market). Long term, this bull market is still intact.

We will be watching this trend very carefully and send a newsletter to our subscribers what we are going to do with our open trades tomorrow or in coming days.

Happy Trading!