Monday December 21, 2015
Key Developments :
- Market Close back above 2020, with a volatile day, and unfilled upgap.
- Potential Inverse H&S could spark the Santa Clause Rally Most are expecting.
Today was a volatile inside day that closed remarkably strong. We gapped higher this morning squeezing shorts into 2020, however the bears stood their ground up there, pushed us lower to retest Friday’s low, however were unable to fill the gap. Not filling the gap is a very bullish development, and this is very similar price action (although on a much shorter time frame) to the action that we saw back in end September, where we tested the August low and sparked the October rally. (Look at a daily chart and compare to below)
So where do we go from here? You can see below the development of an inverse H&S that would be confirmed with a move and sustained follow through above 2022.90 tomorrow. The target for this move would be ~2040, which lines up with the 50% retrace of last weeks down move. Given bullish seasonality and this latest development in the price action, it is very possible that the bulls can once again save the bullish double bottom cup/handle pattern targeting all time highs. If they are to do so, the first thing they need to do is complete this potential pattern below. So this pattern needs to be our main priority tomorrow, as completing it’s price target, or failure of it back below 2020, will likely tells us quite a bit.
The challenge for the market tomorrow will be the resistance it faces at these swing highs (shown below). It is critical that it can break this trend of lower highs and lower lows around the 2020 level. We need to watch all of these levels closely when trading the inverse H&S breakout, they offer risk to the trade, so entries must be chosen wisely with risk reward in mind as always.
I will tell you that the combination of
1) the unfilled gap
2) the 3 pm higher low, inverse H&S into cup/handle (2 triggered bullish patterns seen below)
was enough to have me close my short from last week. As I mentioned in the weekend report, I was looking for follow through and didn’t get it, so game on. The gap up did not scare me this AM because it was a clear short squeeze due to fact there was no base and 2020 had not proven as support yet. It’s never fun to give back P&L, but my plan was to cover when 2020 proved as support, it failed to do so this morning. However, with another day of price action, there is enough evidence that it is possible the bulls can once again save 2020. There is price action to support a bullish thesis now and I always respect that, not what I “think” or “hope” will happen as it just doesn’t matter, and the market does not care.
The Bottom Line:
The bulls have once again, protected 2020 (at least for now). CURRENT price action currently suggest the possibility of a bullish move into the 2040 level, so tomorrow watch for follow through or failure of this price pattern.
Chart of the Day:
Watch UPS to see if it can take out these support levels triggering a H&S top pattern targeting a move to the 50% fib retrace or lower.