Is The Market Ready To Go Down?

Today I shorted all 3 indices near the open. If you've been reading my blog for the past 2 weeks, you should know the reasons why I chose to scale into my short position today.

The past few days I've been posting charts of the DIA, SPY and QQQQ with the fibonacci retracement levels overlayed on the chart. I said I'm waiting for the market to enter the fib zone and then I'll look for reasons to get short. Today all 3 indices made a one third or slightly more retracement at the open. Now all I needed was a pattern to enter the trade. Any idea what that was? I posted about this pattern last week. It's called fading the gap. You can read last week's post here.

Today the QQQQ, SPY and DIA all gapped above the previous day's high. I shorted all 3 a few minutes after the open and exited half the trade when the market went negative. This is a day trading strategy and usually I will exit the entire trade at the unchanged level, but I chose not to do that today because I'm thinking of the big picture. I'm using this day trading technique (gap fade) as a low risk way to enter into a longer term swing trade. Like I said before all 3 markets entered into the fib retracement zone at the open, so I'm going to hold this trade. The Yen also retraced into it's fib zone today.

Another thing I noticed about the QQQQ which I consider bearish is that during this 4 day rally, 3 of those days contained closes below the open. As the market was moving higher, there were sellers dominating the day's price action. I take that as a bearish sign.

If the market rallies next week, I will short more as the market approaches the 50% level. My maximum stop will be a move above the upper retracement level. I marked it off in red in the above chart. Anyway, that's my game plan. Let's see what happens next week.