Monday’s brutal sell-off had a stark similarity to the sell-off we saw not quite two weeks ago on July 8th. While both sell-offs looked like they were about to send the market spinning off the edge of a steep cliff, the fact is that by the time these gap-down breaks occurred, most short-sale target stocks had already been trending lower for several days prior. From an individual stock perspective, both of these gap-down sell-offs were therefore more climactic on the downside than they were the initial, proverbial warning shot across the bow.
The best cloud short on my watch lists, Coupa (COUP), was already down nearly 25% since its initial double-top, short-sale entry two weeks ago by the time it gapped down again on Monday morning. That gap-down break was also undercutting some major lows from May and June, the lowest at 215.00, leading to a logical undercut & rally (U&R) reaction move from there.