Last week’s action should not come as any surprise to those who follow my articles in the Penny Sleuth closely. Since the beginning of the month we talked about how stocks were beginning to look overbought, we talked about not chasing the market, and we talked about not reacting when the media was saying, “Wow, the market is up. It’s time to buy.”

More importantly, we looked at following the leading stocks, and how for weeks those leading stocks were selling off – an indication that the rest of the market wasn’t far behind. And sure enough here we are…

The chart above shows the potential for a turn higher in the coming days. It’s the quality of that bounce (when we get one) that we are most concerned with.

A bounce in the market is so significant because of the damage that was done to the shorter term frequency charts — as shown below. When this sell-off started it blew through multiple support levels like a hot knife through butter. This is what happens when the masses are “all in”.

There is a good possibility that what we’ve just seen is the first shot across the bow. It’s what happens during all rallies from here on out. I am on the lookout for high quality short sell patterns over the coming weeks, and will be spending a lot of time showing you the ropes of those patterns.

If you are long, they’re a great tool for knowing when to get out. If you are a true opportunist with no allegiance to any one side of the market then they ought to lead the way for profits on the short side of the market.

That said, the “First Thrusts Down” pattern is the ideal short-sell pattern to be aware of to profit as the market continues its correction.

A few recent examples are below:

That break of the pink line was good for a 10% pop on the short side. That’s an average annual rate of return in the stock market over the last 100 years — all in 4 days!

That pink line was all you needed to watch.

Next let’s take a look at another issue in the gold sector that also bit the dust recently.

I suspect those major trendline break (green lines on the chart above) types are going to start showing up all over the place in the coming weeks. Keep your eye out for them…

Sincerely,
David Grandey
AllAboutTrends.net

January 26, 2010

David Grandey

David Grandey is the founder of All About Trends, an email newsletter service revealing stocks in ideal set-ups offering potential significant short-term gains.  A successful canslim-based stock market investor for the past 10 years, he has worked for Meriwest Credit Union Silicon Valley Bank, helping to establish brand awareness and credibility through feature editorial coverage in leading national and local news media.

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