SDS And AMZN

The SPX refused to let loose of the shorts yesterday as the squeeze higher continued. Even Bulls have been short-term bearish in recent sessions, wanting a pullback in this nearly 150 point SPX rally, but they haven't gotten what they have wanted either.

Yesterday, the SDS got to within sixteen cents of its "nested" Ascending Triangle target of 45.21. As we've seen so many times before, these "nested" patterns can pack some punch when they break out or break down, as this one did, particularly when the breakdown is a Breakaway Gap, as this one was.

The breakdown on July 15 was one of those "Take No Prisoners...Just For Openers" openings on a Gap Down below the "nested" patterns, to 55.16. The lower trendline was at 55.23. The high near the open was just three cents above that, at 55.26, and it's been down...down...down ever since.

Math for the Bear Flag (in red):

High: 61.57
Low: 51.55

61.57 - 51.55 = 10.02 pts. of downside on the break below the 55.23 trendline.
55.23 - 10.02 = Target: 45.21 IN PLAY

The larger pattern in blue is arguably an Ascending Triangle rather than a Symmetrical Triangle since it has the right look, but for my purposes it doesn't matter because I always use the more conservative of my two choices to establish my target, so using the 61.57 high, my Ascending Triangle target is the same as the "nested" Bear Flag target. Using the 62.08 high to establish the Ascending Triangle target is perfectly fine, in which case the target would be 44.70 IN PLAY.

As we discussed pre-market on the morning of July 16, we had a Channel breakout in the SPX on July 15, crossing 916.292, and we can see here how that was expressed in the SDS on July 15. The Bear Trap was "set" on the successful retest of the Bullish Inverse H&S neckline on July 8, at 869, and the move across 916.292 in the SPX and the Breakaway "Take No Prisoners...Just For Openers" Gap opening of July 15 in the SDS is exactly where that Bear Trap got "sprung."

While this 150 point rally might seem inexplicable, we can see how The Bears who were hopelessly quagmired in their opinion about the technicals and/or fundamentals got clobbered. Remember that 86% of Wall Street Sentiment Survey respondents were Bearish on June 8, Bears outnumbered Bulls 2 to 1 in the AAII Sentiment Survey at the July 8 low, and this rally has been an expression of how wrong they got it.

Painful lesson for The Bears, but if we don't look at "what happened," as we've been doing, we won't learn anything and we'll repeat our mistakes. Getting stuck in an opinion or a prediction can be very, very costly. UGH.

In addition to the July 23 Bearish Island Reversal and Kevin's "possible" Bearish Wolfe Wave in AMZN...

...we've now got a Bear Flag that broke to the downside yesterday (pattern in purple). Basis this daily chart, the bottom of the pattern came in yesterday at 85.9666. The Hourly Chart is slightly different.

The low at the white arrow, which was a "third hit" trendline validation was 86.05. AMZN bounced off that in the morning and rallied to 86.79 (red horizontal line), then broke below the Bear Flag in the afternoon session. Retests of pattern breakdowns are common and are to be expected. AMZN put in a low of 84.93 on the session, then as they turned for home, it rallied back toward the bottom of the broken Bear Flag and almost got there. The close was 35.80, roughly seventeen cents below the lower trendline of the flag.

In the daily chart, the slope of the bottom of the Bear Flag is 0.6733, so it comes in today, August 5, at 86.64, very near the last rally high of 86.79 (horizontal red line), prior to the flag breakdown. Any print above that 86.64 - 86.79 near-term resistance puts the breakdown in question unless/until AMZN should trade back below 86.64, which is the bottom of the Bear Flag for today's session.