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Two days later the index bounced from a low of 15,341, fulfilling this short-term downside objective, and has since continued higher. My short recommendation remains in place, however.
In my last update I suggested adding to short positions if the index rallied back to my key resistance level at 16,175. Indeed, last Friday’s intraday high was recorded at precisely 16,175, providing another opportunity to sell the index short. To confirm a more aggressive correction than that already seen, however, the Dow now needs to fall beneath 15,551. To do so would open the door for a further decline to within a 119-point support band at 14,395-14,514. A 12.5% correction from the recent all-time high would also be completed at that point.
In the event that 16,175 is sustainably breached on the upside, today I will introduce stop-losses on recommended short positions. The obvious tolerance for any overshoot should be up to the point of the recent high. This high can be seen on the chart by the line representing a 12.5% rise from last October’s minor low, and resides at 16,558.
Recommendation: sell or stay short. Target 14,515. Stop-losses can be applied and activated on momentum above 16,558.