Thursday April 28, 2016
Key Developments :
- Markets are setting up for further downside. I am a seller of all strength until I see reason not to be.
- Dow breaks H&S Neckline
- Russell fails back into the range.
- S&P holding gap fill support, below today’s lows = larger correction.
Today’s action was rather wild. We gaped down big due to the fact that the market expect Japan to do more economic stimulus and instead held pat.
However, the dip buyers emerged to fill the gap and then some. However, they ran out of steam up near 2100 and yesterday’s high. This is precisely the level we wanted to be shorting into, and did just that. From there the market formed a H&S topping pattern intranet as you can see from the 1 min chart of the day above. That target was quickly acquired and even saw a push below it, into the lower pre-gap fill support.
That leaves us with a very well defined H&S topping pattern on the 30 minute chart. In my mind we can look at this two ways.
1) Slanted neckline which was tested into the close.
2) A flat neckline, which could give us a bounce up twords 2087 before selling off.
I am leaning twords thinking we may have a small gap up tomorrow morning that will get sold.
Either way, I’m sticking with the 2043.99 price target. I see no reason to believe that area won’t be tested in the coming days.
I took a half position short overnight and plan to add on a bounce tomorrow.
I think that ball is clearly in the bears court to start a bigger larger pull back. If that changes, believe me, I will be posting.
To Add to the bearish thesis, the Russel failed back into the trading range today without acquiring it’s upside target. See if a bounce up twords 1145 is sold again starting a larger reversal.
NASDAQ still looks terrible. Ultimately, it looks like it wants to go lower, but could we get a little relief rally first, sure, but I am a seller of strength.
The dow clearly broke the neckline today.
The Bottom Line:
This market is setup to go lower. It is time for the bears to step up their game. The Dow has the cleanest H&S pattern, so watch that to make sure the neckline does not get regained. That could change things and cause a big short squeeze. I am not expecting that, but we have to respect that as a place where we could be wrong. We don’t want to see that become support again. It is currently resistance. If it does, it hurts the bearish thesis.