Wednesday January 27, 2016
Key Developments :
- Red Dog Reversal to the Downside.
- AAPL Earnings good, but guidance bad yesterday holds NASDAQ down most of the day.
- Inverse H&S dead, now looks to be bearish flag/wedge
The inverse H&S we were looking at is no more. Instead it appears to be turning into a bearish flag. In fact the 30 minute chart of the SPX look eerily similar to how the daily chart of the Russell looked back in Dec. If you remember, we were looking at the RUT-X as a possible inverse H&S. It took out the highs but failed immediately. Just like we did today in the SPX.
It was an interesting day for sure.
The Bottom Line:
With the Inverse H&S now dead, it appears we have broken a bearish flag. Although a minor bounce like we saw in the Russel (above) to retest the trend is very possible. This market looks like it wants to go lower. We held the Sept lows into the close barely.
Chart of the Day:
Today at 10:30 AM EST, Oil inventories were released. I am not smart enough to know what they mean, nor do I care to know. All I need to know is what the price action is telling me. At the moment, it looks as though it could be facing another failed breakout. We talk about the inverse H&S all of the time. One of my favorite bullish patterns. I like it because we have a measured move target, so it is easy to define the risk reward. One thing about the pattern, is, it is not the breakout, but the follow through. As you can see below oil created this pattern at the end of 2015. Only to fail miserably. When using this pattern you can trade it both ways. In particular, when a counter trend breakout fails, you know exactly what to do. Take the other side (short) and put a stop just above the breakout high. I like this because the risk is very well defined, and if we take out the high, we can look to get long for a big move up. Trading is about having no opinion, but understanding what typically happens and how to manage your risk. It will be interesting to see how this one plays out.