Head & Shoulders patterns are showing up in several markets.
First, there’s biotech IBB … and now the SOXX.
The SOXX is higher in pre-market around +2.5% , +2.70%, near 385.25.
Conversely, inverse SOXS is down -9% to -10% near the 14.00 -area.
Today could be the day where risk is minimized to position short via inverse SOXS (not advice, not a recommendation).
If SOXX remains below yesterday’s high of 397.71, it has set itself up to break the neckline. Once that’s completed, we’d then have a measured move lower to around 320.
If short via SOXS, the stop would theoretically be yesterday’s low of 13.21.
We all know however, inverse funds and especially the 3X versions, have significant negative erosion.
If during the regular session, SOXX price action persists throughout the day near yesterday’s high (397.71), inverse SOXS will continue to erode below its own prior daily low.
A different view is the Right Shoulder has not been completed. We’ll know that if SOXX makes a new daily high.
It’s a myriad of scenarios and the professional understands there’re an infinite number of outcomes. However, at times, risk is reduced enough to take a position on a probable direction.
At this juncture and given the above conditions, the most probable direction is down.
One last caveat.
SOXX has broken below well established support. That puts it in Wyckoff spring position. The market will automatically attempt to rally as we see in the pre-market.
Based on the conditions described, we’re expecting that spring attempt (to new all time highs) to fail.
Charts by StockCharts