Here’s a quick read that I suggest reviewing before Monday’s open. Last week marked the most distributive pattern I’ve seen in some time. I describe it below.
Subscribers were made aware of this ongoing development every day. Two of our biggest performing setups were Wednesday afternoon’s retracement, and then Friday’s drop. The same setups occur often on shallower bounces. Size doesn’t matter.

Anyway, enjoy the following analysis of last week’s pattern. Trade its natural resolution in my live chaRTroom with real-time intraday market timing setups HERE.


Markets reached a precipice Friday, we can at least say that. Referencing the below chart, you can see that last week’s new recovery highs were restrained by persistent, concentrated, strong-handed distribution:


  • Friday’s complete retracement of Thursday’s rally was the resumption of distribution that I began identifying on Monday. That was a failed probe above prior highs, isolated to the morning’s timing window (1). 
  • Tuesday isolated another probe (2), and also retraced Monday’s failure (2b). 
  • Wednesday’s intraday rally probed no prior highs, but it was substantial, and its retracement was completed within the same timing window (3). 
  • Thursday tried to invalidate the distributive pattern, but the afternoon did not confirm its breakout, because its rise was only a function of having dumped all of that ballast Monday, Tuesday, and Wednesday. It was not strong-handed buying. So, its failure on Thursday was not unexpected, completely retracing the week’s most substantial rally (4). 
  • More so, the close ended under a prior consolidation (circled red). This triggers the equilibrium shift from distribution into strength, to distributing into weakness. Which tends to become very, very aggressive selling pressure.

Such persistent, concentrated, strong-handed distribution is positioning for more than one week of problems that might be forming on the horizon. Coinciding with Friday’s 2-point surge / capitulation in the 30-year Treasury, which triggered a Cup & Handle pattern, a paradigm shift is permeating among market participants. That reasoned selling is being joined by the next most aware tranche of market participants — those who monitor actions by those who monitor the horizon.

Thursday’s rally could have proved itself by a second consecutive higher close above last week’s range, which it did not. Similarly, now breaking under last week’s range must prove itself by closing lower again on Monday.

Of course, it always seems darkest before the dawn. And, more on point, bull markets have a way of stepping right up to the brink, and then reversing straight up. Is this such a bull market? The alternative to falling into this precipice — the most glaring and pronounced precipice since long before the ongoing Christmas rally — avoiding this precipice would suggest resuming the rally to much higher highs.

Meanwhile, another failed bounce or a lower close on Monday would maintain the distributive pattern. And Sunday night’s Globex open is already probing further below last week’s range…

Rod David
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