Monday March 28, 2016
Key Developments :
- 2 Major Patterns to watch out for tomorrow. 1 bullish, 1 bearish.
- Yellen Speech at 11:30AM EST tomorrow.
Many would consider today’s price action choppy, but I really suggest you take the time to review the intraday 1 min chart shown above. Someone StockTwited at me last Thursday telling me that “Technicals” don’t work in this market. To which I absolutely laughed my a$$ off. I invite you to not only look where today’s rally ended, but also where Thursday’s rally started. Basically penny for penny on the target. People can complicate things and be frustrated by trading what they think will happen, but around here we trade price action and leave our opinions at the door.
Now that that rant is over, I believe the market is very vulnerable and went out short. Here are my reasons and what I am seeing in the price action. Despite the recovery from the gap and crap this morning, we closed the day with a large H&S top on the 1 min. Despite the fact that it triggered and recovered a bit into the close, we still have that pattern here.
Completing the above pattern sets up a larger Bearish H&S that looks like this.
Is there a risk here? Absolutely, just like always. Which is why the 5DMA is our guide right now. The 5DMA is just above this pattern here that could be an inverse H&S and must be respected. So if the bearish pattern is going to fail, we will see this bullish pattern breakout and a move back above the 5DMA. If you decide to short, it is something you want to be ultra aware of.
ES_F is telling us the same story.
The number of stocks above 40DMA also appears to be pulling back from overbought conditions.
I am also finding the VWAP anchors in TC2000 very useful. I really don’t think we will want to be short above today’s high.
The Bottom Line:
With Aunt Janet scheduled to speak tomorrow morning, the market is giving mixed signals. I am leaning bearish due to 5DMA, overbought conditions and the fact that I shorted near the top of the right shoulder so the risk/reward is skewed. If we see a break of the bullish pattern, I will look to cover and go long. That is my plan. Hope you have one too 🙂