Thursday May 5, 2016
Key Developments :
- Russel (IWM) Acquired it’s Downside H&S Target, but has not filled the gap.
- S&P 500 is yet to acquire it’s full H&S target at 2043.99
- DJIA is yet to acquire it’s full H&S target
- Markets are oversold. Prepare for a dead cat rip your face off rally.
- I am swing long CMG
I would consider today a frustrating day. As I said in yesterday’s report, until we acquire the downside target at 2043.99, I want to be a seller of strength. What that means is I want to find entry points on rips that make sense.
Once we acquire the target, I will be much more neutral and open minded, and will be looking for more bullish trades. More on that in a minute.
If we look at the left side of the chart above, we notice an inverse H&S pattern, which re-triggered with today’s gap up. Once I recognized that at the open, I decided that I would short on the target acquisition. I figured at best we would acquire it and then go up and fill yesterday’s down gap where I would add with a stop back above 2065. I took a bit of pain initially, but not much as you can see.
We then formed sort of a H&S top and I was certain we would fill that gap. And then the bulls stepped into protect. When you add up a failed gap fill, followed by a failed H&S top, you cover. Which I did. Only made about 5 points and didn’t trade the rest of the day. At that point, I was not trusting the price action.
As it turned out, we went on to form a larger H&S pattern which triggered and moved lower fast. I was going to attempt entry on neckline retest but we never got it. Oh well, that’s trading.
DJIA – Still yet to acquire it’s downside target.
RUSSELL Has Acquired it’s downside H&S target, but will it fill the gap?
S&P is oversold. You can see what typically happens when we approach these levels. Dust off your bull hats.
The Bottom Line:
The bears are yet to acquire the downside target and the market is oversold. I am on bounce alert. Particularly if and when we acquire the 2043.99 (204.16) target on the S&P. My plan is to cover there and then look for a failed breakdown trade or an inverse H&S reversal pattern. It looks to me like a very likely scenario will be to acquire the target, maybe get down to 203 on the SPY and then bounce. That is what I am anticipating and will be looking for going forward.
Chart of the DAY
I noted above, I went home long CMG. It got back above and closed above my 434.06. I actually got in on the pullback int the down trend line today. Yes a little below my 434.06 level. I will not let the trade go against me, even if that means stopping out and getting back in. We can see from the chart it is sitting between 434.06 and the VWAP from the chasers that didn’t get out on 5/3.
I continue to like the risk reward, even if I am proven wrong. I am basically risking zero to make $35 if I am right. If I am wrong, I have no problem admitting it and moving on. The market doesn’t care what I think. The trade is to hope shorts get squeezed with a close up here. If they remain fearless, the will push it back below the level And we will watch for our next opportunity. It’s call trading and risk/management.