SDS has so far targeted the .618% retracement from previous short term high of 28.52.
The price action in this double short ETF has been satisfying for the bears. The markets have been extended for quite some time. This pullback has been welcomed by many who were anticipating the double top formation in the S&P to open the eyes of punch drunk bulls to the necessity of a pullback from time to time in a sustainable uptrend.
The last projection for SDS was 26.85. This would have satisfied a near term trend correction ABC wave higher from 27.91. SDS has surpassed this level, if SDS trades above the 27.91 level and tests support at 25.35 successfully, it could be bearish for the markets.
The current wave pattern that may be developing in SDS today is as follows. 25.35 price zero point low. 26.28 wave 1 high. 27.42 wave 3 projected high. This is where trading is headed today, between a .618% retracement of the 28.52 high and the projected wave 3 high. 27.91 is the internal wave 3 of wave 5.
Trading in SDS wave 4, if this is to become a bullish 5 wave sequence instead of the mentioned ABC corrective wave, could trade to 26.15-25.68. Then continue higher to 28.71. This would complete a 5 wave sequence and could reveal a larger downtrend in the market, if support remains intact.
However, there are still lower projections for SDS not far from the current 52 week lows that are ripe for a wash out type of trade. 24.79 and 24.27 mentioned at the start of the month. These could be great prices to watch for support if the averages decide to make new highs after this, so far, small pull back and then close lower for an intraday reversal. There still is not great signs of divergence in MACD to the wave 3 lows of 25.35 on the smaller time frame charts.
The trading in SDS has been very organized and maybe just a little too simple to bet completely short right now, but its certainly a good time to have protection on any long positions for the rest of the year in my opinion. The double top formations may not yet be enough incentive to transfer the investments of the strong to the weak. Certainly once this happens trading should see even larger swings.
