Thursday March 10, 2016
Key Developments :
- The Day of 3 – That is 3 technical patterns formed, fired and completed.
- Doji Day
- Draghi Bazooka Backfires?
Today was a rather wild ride. And if we are honest with price action, tune out all noise and biases, these days can be very profitable.
If we look at the chart above we notice a nice gap up, spurred by initial reaction to the European QE Bazooka. We created a 15 min range breakout trade which turned into a mini H&S top targeting 1990.98.
We acquired that target and then a bit more, which formed a bounce for a nice inverse Cup/Handle or H Pattern, targeting 1969.12. We bottomed at 1969.25, so we’ll call it close enough.
That setup a mid-day accumulation into an inverse H&S which triggered and acquired it’s upside target at about 3pm at 1987.73.
That left us with a very interesting close. The market retraced to the 61.8 Fib. It looked like it was trying to trigger a cup/handle but it failed. The question looking ahead is which way these patterns break tomorrow.
Now if the above pattern is to trigger lower, it could lead to a bigger unraveling as we have what could be a H&S reversal pattern.
We have broken trend, retested trend an failed. A move below today’s low at 1969.25 would trigger this pattern down to 1929.37.
On the long side, it’s very difficult to find a good risk reward trade IMO. If we take the last two days, we had 2 gap up sold. Yes the bulls recovered from them, but can the bears wear them out?
I think if this pattern is fully negated, but taking out today’s highs and 2009.13, we likely head to the 161.8 retrace at 2031 as our next target.
Looking at the futures, same thing. Trend line retest. Good Risk reward short here. You don’t want to be short above that trendline.
The Bottom Line:
Despite the volatility, the price action was as clean as it comes today, and should have lead to a good day of trading. Looking ahead, the easier trade is to short this late day bounce today with a pretty tight stop and see if we can trigger the H&S top pattern tomorrow and have a 2% down day. It does not mean it will happen, but things are lined up well to do so.