Thursday January 14, 2016
Key Developments :
- 9/30/2015 Gap Filled at 1884.09
- Market Stages an un-impressive short squeeze relief rally off the gap fill.
As oversold as we are, it was only a matter of time before the market staged one of it’s infamous, bear market, short squeeze relief rallies as it did today. All in all, I really am not overly impressed with what I saw. Did I participate yes, but the fact that there were several excellent bullish patterns price patterns for the in many of the big names (AAPL, FB , AMZN) for the market to take advantage of, none of them were able to acquire their targets. AMZN failed to even breakout, AAPL and FB and the SPX gave back their entire breakout into the close. Now, it is possible buyers step back tomorrow, to save the patterns, but all in all, with the oversold conditions we have, I need to see far more buying interest. There is no FOMO here by any means that is for sure. At least a close near the highs would have made things a little better, but this was a weak rally.
Let’s start with the SPX and the we’ll talk the other names.
For the 5th day in a row, the market gapped up and saw the early strength sold. This has the smell of some kind of market manipulation by the options market makers trying to hold this thing up into op-ex so they can pin it at max pain. I see no other reason for the market to be up 20 handles every morning only to be sold. However, that is what is happening and shorts are fearless because the gaps are not scaring them. Usually gaps like this create squeezes, but it’s really not happening. That being said, we did get a technical trade today off of the early weakness.
Below is a quick look at how the day played out. We once again saw the gap up sold however once the lower gap was filled, both today’s and the 9/29/15 gap, we set a higher low, regained yesterday’s low and a massive short squeeze occurred. We can see the formation of a cup/handle using this action (with inverse H&S in the handle). This pattern triggered at 1:08 PM EST, and saw some follow though, but then profit taking occured up at the 3rd pivot point of 1930. This leaves us in an interesting position for tomorrow as the close was back at the pattern neckline. A move back below 1916 would put this pattern in major jepordy. So if there are any bulls left out there, they better circle the wagons and save this pattern.
Cup/Handle target :
At the moment I will watch for 2 scenario’s to playout.
1) Shown in Yellow. Bulls step in tomorrow morning, take out today’s high and rally us up to the the target of 1954.47. This could set up another pattern for a bigger move higher.
2) The 2nd scenario is we breakdown 1916 becomes resistance again and we head to the August low of 1865.
This is what I am watching for based only on what I have to work with now.
Some of the things I traded today were AAPL. It broke out of this nice inverse H&S pattern with a full target of 100.90. I would have been much more impressed if it acquired it’s target as it would have shown me buying interest. However, strength was sold before the target when the trend broke. Everything was aligned for this one and It didn’t make it. That has me questioning the buying interest in this bounce.
Same thing. 99 Target, failed to acquire although the selling was not a prevalent into the close. Still, we want to see the targets be acquired. They have been failing miserably
Did not trade this one, but talk about un-impressive, it didn’t even break out.
The Bottom Line:
The market staged a nice short squeeze rally today, but we need to see far more to be truly bullish other than for a trade. We have more or less completed the creation of the H&S pattern on the daily that we have been talking about for some time now (particularly in the weekend journal). I show it below just as a reminder. Sure it is possible that the market gives us a gift rally to re-establish shorts up around 2000, but I am not seeing any evidence of that occurring. We must respect this pattern as it is prevalent throughout many of the charts I watch. Odds are very very good at some point this year we are going to break this thing. I don’t know when, nobody does, but it is very likely to happen. This has become a bear market by anyone’s stretch of the imagination.
Tomorrow our top priority is to see if this afternoon’s weakness is bought up, today’s high taken out and the cup/handle saved, or if it is killed off and we go lower. When you study price action like I do, the decisions become very simple.
Chart of the Day:
There are very few bullish charts out there, but this one showed up on my +4% up movers today. It appears to be breaking out of and inverse H&S pattern. Breakouts have been difficult in this tape, so will be interesting to watch this one. It seems to have held up pretty well in the January sell off. The measured target as long as it is above 13.33 is $17.