12Jan12:53 pmEST

A Familiar Dark Trap

The indices seem to be tracking crude oil fairly closely today, as small caps continue to lag while the Nasdaq leads. 

After an opening gap higher, we filled them below and are currently grinding to a halt as the afternoon portion of the session kicks into gear. We are seeing some real destruction in names like AA FCX SUNE, but bulls are trying to shake that off and sustain another snapback rally higher into the afternoon to cement at least some type of short-term low in place. 

In determining whether they can sustain a rally from oversold conditions on intermediate-term timeframes, let us look at the leading QQQ (Nasdaq-100 ETF), below, on the 30-minute chart. 

For Members, we examined the falling wedge/channel pattern in recent sessions, denoted by the larger light blue lines. The pattern is often viewed as a potential bullish reversal pattern if and when we see an upside move above the upper light blue line. However. a familiar and very ominous trap is when we see the pattern in a downtrend, with price popping above it only to then fall back inside the wedge and eventually crack new lows with a new round of trapped longs. 

So the stakes are high here, and I suspect another move below $104 would wreak havoc on a bounce scenario. A move back over $106 now likely sets in motion that secondary leg higher. 

I will cover that and plenty more for Members in my usual Midday Video, coming up. 

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