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Market Drop Brings Out the Yellow Flag


With the market losing the first area of support, new short setups are starting to percolate and offer opportunity.

The market seems to be getting quite thin, meaning that the opportunities for solid setups are becoming harder to find. Whenever this transpires it indicates to me that we're going to enter a phase of consolidation or retracement. This is not necessarily a bearish activity, but rather a resetting of the current trend, allowing us more data to analyze in order to determine if, in fact, the run can continue, or if a new trend lower is upon us. A few days ago I pointed out levels in the Dow that should be observed, the first being 13,055. Yesterday this was breached on a closing basis which is an uber-short-term win for the bears. The next level which is higher in importance is 12,953, or the low of the power move from March 13. Should this be taken out it would indicate a failure on the part of this most recent advance and give bears ammo to attach even further support levels found below around 12,734. For now the breach raises a yellow flag and a time to pause while we wait to see how the action plays out.

While the yellow flag is risen, there is little in the way of solid setups, and today I come in with more short than long watching Genuine Parts (GPC), Ecolab (ECL), and Oil States International (OIS) as possible trade candidates. Each look to be breaking down from short-term consolidation patterns, and with stops above, may be ripe for swing trades to the downside.
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