*** WARNING: This is not trading advice, so please don't use it for your trading decisions. Any actions you take based on the opinion below are solely at your own risk.

The price action during last week does not bode well for the Dow -- two attempts to climb back over the 50-day average (the green dashed line) were repealed with a firmness that suggest the pain is not yet over. So, longs are out of the question until the Dow crosses 13,500 and the 20-day moving average (the blue dashed line) turns up and volume picks up as prices move higher. The chart, however, has demonstrated the basic framework for considering a shorting opportunity (i.e., repealed test of the 50-day average coupled with high volumes on downturns and a close below the 13,250 mark).

So, the trading plan is to enter a short at 13,100 (i.e, below the lowest low of last week) with an initial price target equal to the 200-day average (12,800). A protective stop will be triggered by a close above 13,250 and the trade will be exited at the opening price the following morning. Depending on the exact exit price, the trade offers a risk-reward-ratio of between 1.5 and 2.0. I will be posting end-of-the day updates if this trade is triggered.

Why does the chart below also have a line drawn at 11,950? Because that is where prices could drop if the current pattern evolves into a full-blown head-and-shoulders breakdown. While it is too early for this pattern to play out as of now, subsequent price action could help determine the viability of this trade. First, look for a bounce to around the 13,700 level. Second, the bounce must be unconvincing -- lower volume as higher highs are printed on the charts. Third, a break of the neckline at 13,250 on increasing volume.



It is going to be a volatile week, so plan for the best -- but be very prepared for the worst!