The proverbial picture and the 1000 words. The chart above clearly and without questions illustrates an extremely vulnerable stock market. The Head & Shoulders top (SHS in yellow) resulted in the rather grotesque August – September swoon. The October rally simply brought the market back to the neckline, typical action, the next leg of this pattern should take the market down to challenge the low marked by the # 1 in yellow.
Of course, this technical picture must be viewed against the back drop of massive QE plans set forth by the UK, Japan, Swiss, European, US and China central bankers over the last couple of months. A short of the markets here to defend long positions would be appropriate with tight stops at the most recent highs marked by the # 2 in yellow. In light of the aggressive willingness of central bankers to devalue currencies (add liquidity) any short positions should be viewed as a hedge and temporary.