Monday May 2, 2016
Key Developments :
- Bearish H&S pattern is under major attack.
- Friday’s double bottom successfully acquires it’s upside target and triggers a 2nd bullish pattern.
They certainly left us with alot to think about tonight. If it’s not obvious by now, the Bulls are not going down without a fight. If you read Friday’s report and the weekend journal, you know we were watching to see if the bullish double bottom could acquire it’s upside target today. It did so in the 11AM hour before consolidating and forming a 2nd bullish Cup/Handle pattern. We can see that pattern above. If the 61.8 Fib can become support, we might be well on our way to killing the bearish H&S and acquiring the upside target of 209.71 Calculation ( 207.37 – 205.03 = 2.34 207.37 + 2.34 = 209.71 )
If you are following me intraday, I tweeted this out around 11 as I was not seeing the signs of weakness I would expect. It just felt like they were going to drive it back to the 61.8 as there was a magnet up there.
The magnet I am speaking of are the 61.8 fib, the VWAP from the 4.20.2016 highs and the H&S neckline. All are still in tact and the reason I held my short which I entered at 207.80, overnight. I tweeted when I put this trade on and said I would not hold it, if we closed above the vwap. We did not, but I will not give this too much room tomorrow before I take it off and re-evaluate. Regaining the H&S neckline would be catastrophic for the bears. More or less and epic failure to not take advantage of the bearish price action. Today we can chalk it up to 1st of month flows etc, but tomorrow there is no excuse. Either hit it here or the Bulls win.
The risk is still low in my mind here to hold short overnight, which is what I did. Can we gap up 2% sure but this is where I short H&S tops, either in right shoulder construction or neckline retest-est with well defined stops. I am only executing a plan as I did all day.
My trading today consisted of
1) Taking a tiny long on the morning dip into the double bottom target.
2) Shorting just below the 61.8 fib @ 207.80, I am down about .12 cents on it and holding overnight. Will be quick to take it off if vwap and neckline regained tomorrow. Baring a major gap up, I am risking very little here.
The Bottom Line:
Using the 1st of month fund flows the Bulls came out hard today and pushed the market to the brink of an epic failure by the bears. We are still below the vwap high, the neckline and the 61.8 fib, however if they regain it and that area becomes support, the upside target is 209.71 on the SPY. Failure here keeps the H&S in play and this is just a typical throwback to the neckline, and our downside target is 204.16. I am currently playing for the bearish move with a short at 207.80, but I will be very quick to change my stance tomorrow if those levels appear to be breached. In order to totally reconfirm the H&S now, we need to take out the handle low on the Cup/Handle at 206.79. If we head lower in the morning, I will be evaluating closely at the cup/handle breakout level of 207.40 as if buyers show up there, it could rip higher. The really left us with alot to think about tonight, that is for sure.
Chart of the Day:
I am watching this name like a hawk. GDX formed a very similar H&S pattern which on failure caused and epic short squeeze. CMG has been in the news and is a contrarian play to the long side. We need to be above 404.06 to be long this stock. And can not be long on a close below there. We nibbled above it briefly into the close, but ultimately closed below it, keep it on your radar just in case. It is possible it just gets sold here too, but we we buy it just above the level and honor the stop, the risk reward is fantastic.