The overbought market was due for a pullback, as I mentioned in last nights post, but today was the worst possible pullback. Today’s huge down day took out much of last weeks rally attempt. As you can see from this chart of the S&P 500, the last rally attempt lead to much lower prices, and we could see the same; lower highs and lower lows.

The inverse ETF’s, which were sitting near their trendlines on Friday, bounced from there and are looking good for more gains. These provided great gains from the open.

Gold had a big down day, creating a Bearish Island Reversal pattern. This is when there are two gaps that separate prices on the “island”. Buyers on this island are now trapped.

On DZZ, the double short gold ETF, a Bullish Island Reversal pattern has formed, which has those short trapped on the island.

These could provide great short term opportunities, although Bulkowski rates these patterns dead last in performance.

Other than the inverse ETF’s, I am not looking at anything else here. It looks like lower prices from here, so no need to look at stocks to buy.

Trade Ideas for 12/02/08:

None

Good luck and good trading!