After weeks of going straight up in the U.S. stock market, Tuesday’s break announced the beginning of a possible correction. A view of the NASDAQ chart, the leading major index in the market, provides some insight on the recent action.
As shown, the NASDAQ broke down from a tightening ascending wedge pattern and now appears to be retesting the lower side of that wedge. Another bout of selling within the next four days would confirm the break. A rise to new highs would negate the break. The set-up allows for a low risk index short with a stop at new highs. Instead of the NASDAQ index, I would short (or buy puts) on a lagging index ETF like the Spider Industrials (XLI) or Ishares Transports (IYT) and close the short if the NASDAQ or S&P500 hit new highs.