Two roads diverged in a yellow wood...


Well, it's not really yellow, and it's not really a divergence, but my signature background colored chart for the Nasdaq 100 is sporting a 14-day stochastic that is leading the way down (the same set-up is seen in the Dow, S&P and Russell).  In addition, price has dropped out of its short-term up channel. Taken together the likelihood of a short-term correction (at least) takes first place in the scenarios going into December. 

This chart below suggests the market is overdue for a 10-20% correction over the next few months. Patterns like we see in the NDX chart need to be taken seriously. Aggressive traders would be buying QQQ puts just on the chart above, and combined with the implication of the chart below, those puts should be at least two months out. We can't time those corrections in advance, but we can do our best to recognize, usually in retrospect, the technical conditions that appear at their beginnings. Recognition is now, price needs only to follow-through to confirm. We will know soon enough. 

The reason we need to be looking for a downside opportunity over the next couple of months is how well our puts did in the 4th quarter of last year. Defined by "Maximum Profit Potential" these are the 20 top trades from our paid services over the past 18 months. The shaded rows are all from last year's 4th quarter market debacle. 

Happy Thanksgiving from all of us (both) at Blue Line Trading!