Thursday’s market dropped the Nasdaq composite, SPY, and the Russell 2000 (IWM) below the trendline of the rising wedge we have been following. (The wedge in the IWM is less pronounced.) A rising wedge is a bearish pattern that works in commodities and individual stocks. In the case of broad averages, I’m not sure that the targets are as extreme as for individual entities. Therefore, if the pattern “succeeds” it will deliver a 3% rollback to 2114 on the Nasdaq. In any case, I have set stops tight in the event of a sell-off tomorrow. I suggest that if you hold something and it gaps down, wait 5 to 15 minutes to see if there is a gap fill before selling.

There is no scheduled news tomorrow, and it seems as if market sentiment remains bearish in the face of news that was moderately good on Thursday. Of course, there is no guarantee what will happen tomorrow, but it helps to be ready.

We’ve been discussing the pattern in the ETF-Letter for several weeks. For a free copy, go to www.etfdiscipline.com

Paul Accampo

Editor, ETF Letter