We’re watching the nasdaq, but we see the same thing in the SPY, and we have two concerns: First, the Bollinger bands are pinching down, pointing to a large breakout in either direction. Second, we have a rising wedge formation. This is a bearish pattern that indicates selling by institutions to individuals. Bad news could, in theory, cause a break below the green line at 2160 that could (theoretically ) take the market down to 2024, a 9% drop. The wedge will fail if the nasdaq goes above the red resistance line. What’s missing from the wedge is falling volume, a necessary requirement for the wedge to work. We’ll be watching for falling volume on Friday.

 The more reliable pattern is the Bollinger pinch. You can see on the chart a pinch around October 8 that led to a rally to 2191. Either pattern could fail; however, knowing what is possible tells you to set your stop just below 2160, as opposed to 2114 or 2024.