Setting Sail on the High Dow Seas

The new short Visa trade I entered in my last blog post is going to be a big one, insofar as it pertains to the Dow Jones Industrial Average.

Note that Visa is now, by far, the most heavily-weighted Dow component (click here for source). 

The theory behind the short trade can be found on the daily chart, below. We can see a well-defined rising channel, in light blue. Earlier this month, price was rejected at the top of the channel, upper light blue line.

And now price is consolidating at the 50-day moving average (dark blue line), right smack in the middle of the channel. The purple lines denote a possible bear flag pattern, setting it up to break lower. 

My bet is that price is "leaning down" against these reference points too much, and will soon break under the pressure. Of course, the reaction by the market to the Fed this week could affect the outcome, too.

But on a standalone basis the trade is worth the risk, with my stop over $280. If correct, Visa could break the channel lower and head towards the 200-day moving average.