Monday February 22, 2016
Key Developments :
- Another Gap and stall trading day
- First signs of potential reversal of this rally with momentum divergence and H&S
Today markets opened with a another large gap up and then spent the rest of the day in about a 5 point trading range, below the previous swing high and the 50 Day moving average. The mid-day higher high rally that failed and then lower high into the close, is offering us the first signs that this market wants to at the very least take a breather. You can see the H&S pattern on the intraday range that formed. It’s only a 1 day pattern, so we can’t fully trust it, but it could start a reversal up here at key resistance, so we must be aware of that.
If the rally is to stall here, this is the type of price action I will be looking for.
There were clues early on that this rally would stall as we saw your first signs of momentum divergence on the hourly chart. And then the weak bounce into the close forming a potential right shoulder for at least an attempt to fill today’s gap.
The Bottom Line:
The market gapped up and stalled at key resistance today and to this point has set a lower high with momentum divergence. This is a sign that we may pull back some. I went out short by shorting into the last 30 minute rally. I will cover if we open above today’s high, and if not will use that as my initial stop.
Chart of the Day:
CSCO I like this one as a short candidate only below the trend-line. There is a clear H&S formation present here with a target down at 14.67. The risk reward is good even if you were to use 30.31 as your stop. That is the high.