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This chart shows a clean failure test in AAPL. The pattern is a brief probe above resistance, followed by an immediate failure and sharp reversal. Many traders would be reluctant to short after a move like this, as it is always possible to point to any number of “levels” that could support prices. However, there is a clear and strong statistical tendency in this pattern (which was the first trading pattern I examined in The Art & Science of Technical Analysis): shorts can be initiated on yesterday’s close, or in today’s session at the same level or higher, with a stop above yesterday’s high. Position sizing with this trade is problematic, as there is always some gap risk in countertrend trades made in strongly trending markets. Regardless, this is a pattern that demands attention.

(It is also worth considering the August consolidation in the S&P 500 as an example of how this pattern should not play out for shorts. Continued consolidation and pressure against resistance is very constructive for the bulls.)