Thursday May 12, 2016
Key Developments :
- The tug of war continues.
- AAPL breaks and closes below major support
If you read my pre-market note, I was saying that it wreaked of a gap and crap and that’s precisely what we got. The market is distributing so they run it up on low volume overnight so they can sell it to late shorts who scurry to cover. This is what happens to people without a plan.
As far a the big picture though, not much as change.
I did cover some mid-day and then re-shorted with Russell. The reason for my cover, and I tweeted it out, was that I believed if the bulls were going to save this tape, the place to do it was right at the 61.8 fib.
So when we broke it, I covered. And when we regained it, you see what happend.
Even if I was wrong, I figured, I’m in the bottom 1/3 of the range. I caught a good piece of the down move and the real move will happen once we close below the H&S top. In here, I want to be a bit more tactical and just buy support and sell into strength. Once we break down, which I do believe we will, then I just let it ride.
The reason I went short Russel this afternoon was because to me the pattern is cleaner. It doesn’t contain the big momo names like AMZN that are holding the market up and has very little risk of inverse H&S bullish play that is currently visible. This is cleaner, has 5% of down side when the neckline breaks and looks as bad as it can get. S&P just contains too many sleepy big cap names that just aren’t selling as fast.
The Bottom Line:
The bullish inverse H&S in SPX still exists, and I am still leaning towards this being the lowest probability setup however, the market will decide the outcome, not me. What I am doing is try to trade with what I believe is a changing trend lower. I am no longer looking for bullish setups. I may cover at support to de-risk, but then I am waiting to sell a bounce. Different tactically than last Friday off the target. We change our thesis when it becomes clear the bearish pattern is going to fail, but there is no evidence of that yet.
Chart of the Day:
It sure appears as though the series of lower highs and lower lows is about to continue. Today IYT broke down and closed below it’s double top pattern. If we see some follow through there, it should give even more indication as to where we are headed. It led us higher in Feb and is starting to lead us lower. Keep it on your radar.