Last week we saw nasty price action with the S&P 500 (ES) down 2% and the Nasdaq (NQ) down 3%, driving the overall market lower into the weekend.
If we look at the put call ratio (PCALL), it is showing a reading that most traders are positioned short right now. The market is extended, so there could be short-term bounces coming.
The major thing to keep in mind is the monthly squeeze in the indexes that fired to the upside is now over, having lost momentum and structure. For the first time since this squeeze, the ES closed below the 8 exponential moving average (EMA), which typically will push price down to the monthly 21 EMA.
The key in this environment is to play the ebbs and flows of the market where the path of least resistance is – to the downside.
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Stay Focused!