We’re no where near a sweet spot on any of the weekly charts, but we are seeing condition #1 in the S&P and Nasdaq (not yet on the Dow). Both charts show a daily lower-low swing. Price would need to rally back up in a retest fashion – which I believe it probably will – and we will have to see if it makes a lower high. If so, that would be condition #2, but it would need to take out the lower level to generate an actual sweet spot.

Know that stocks that follow or mirror the indexes will be setting up similar patterns should the conditions turn negative into a short-sell sweet spot trade environment, and there may be plenty to pick from. Citigroup also showed the pattern in June – many financial stocks have done so (I showed Bear Stearns above). I have not specifically been looking for the pattern recently but will do so with a more watchful eye now. Caterpillar (CAT) looks to be in condition #2.

Remember, to be an official “Sweet Spot” trade, the stock must have been in a pronounced uptrend of a relatively long duration. Sweet Spot trades actually are rare. I suspect we could be seeing more pop up, but it takes time to find them. They’re just an additional tool in the trader’s arsenal.

Any stocks you see in the sweet spot ready for shorting?

Thanks