Thursday January 21, 2016
Key Developments :
- Despite Rally, Downtrend In Place.
- Market Fails to take advantage of bullish price patterns.
We opened virtually flat after a wild overnight trading range. We saw some early weakness bought but then sold in the afternoon session. If you are a bull you really can’t like what you saw today. The reason being is because we have some very constructive price action to work with yet were unable to take advantage. What I mean by that is that after yesterday’s inverse H&S and cup/handle completed, we had a huge cup/handle today. We attempted to break out of that, but there was just no follow though to take it higher and we ultimately closed below the neckline. In doing so, it appear we are not creating a bearish H&S top. This is the reverse of what we have seen the last 6 years. What we have been seeing is bearish patterns bought on weakness and fail to the upside. Now we are in a tape (and have been for a while) where strength is being sold, in particular near swing highs (like today). With the down trend in place, it is no surprise that this is happening, but it is something to continue to keep note of, as we know the environment has changed when we start to see 2 or 3 bullish patterns complete in a row. On this bounce we saw 2 complete and it looks like the 3rd is going to fail.
Just to keep us on our toes, yes it is possible we are forming an inverse H&S seen with blue markings below. But we have a H&S formation in a bearish tape in that right shoulder. If we can take out not only today’s high, but take out 1901 and hold above it, we would have a higher low, and higher high, but the benefit of the doubt is with the bears right now, not the bulls. We have to keep this in mind as conditions are still oversold, so it is possible we continue higher, but the bulls have their work cut out for them.
Just looking at the trend of lower highs and lower lows is really all you need to know. That has to stop if we have any expectation of a larger rally.
On the daily time frame, if we look at the 8DMA, it is clearly keeping this trend tight and down as well. No reason to get to cute on the long side here.
The Bottom Line:
The bulls have once again, protected 2020 (at least for now). CURRENT price action currently suggest the possibility of a bullish move into the 2040 level, so tomorrow watch for follow through or failure of this price pattern.
Chart of the Day:
While many charts are broken and volatile, this one is clean and simple. Clearly a H&S top. A break below 134 triggers the pattern with a target of 97.50.