Tuesday February 2, 2016
Key Developments :
- Market pulls back hard from 50% retrace.
- Not much of a reversal pattern signaling this move except for the pre-market $SPY right shoulder.
Days like this are difficult. The question is was there any clue for us to know this was coming.
I point to two items today.
1) Yesterday we tagged the 50% retrace of the previous down move and rolled over.
2) The SPY had a H&S pattern using the pre-market data. The target was not quite acquired today due to the triangle support shown below in the notes.
I think the market is in a very critical spot right now. If the bulls want to keep this rally going, now is the time for them to step in. As we have talked about, we have 2 bullish inverse H&S patterns in motion, (we have only been discussing the smaller one as it is number 1 priority) but both are under major pressure here. You can see the patterns on the 2nd chart below.
Using some triangles to analyze this action might be more useful for this environment, while the market tries to find it’s next trending move.
- Today we closed below the uptrend from the 1/20/2015 Bottom. (See purple uptrend line)
- However, we are still holding above the green breakout trend-line.
That lower green line in my mind is the line in the sand. Below that, we should test 1872. (Maybe we create a right shoulder off of 1872 with a minor bounce contained by the trend line.
The scenario which will frustrate the majority, and I will not discount it as a possibility, is that we trade in a squiggle between the green down trend and yesterday’s low.
In my mind this will be very difficult are to trade, so probably should sit on your hands if between 1920.30 and the green trend. I show in Red a very similar situation from last week.
Inverse H&S patterns under pressure.
Additionally, we are trading back between the YTD vwap (green) and the VWAP from the lows (purple)
The Bottom Line:
The market is a t a critical support level after breaking the uptrend from 1/2/2016. Use the levels above to trade tactically in this environment. The combination of the triangle and the 2 vwap lines shown above should act as the guide to trade accordingly. If we are going to roll over for good, we will be able to watch price break away from these levels.
Chart of the Day:
The market didn’t react well to the earnings on this one. Today it closed below the neckline of a H&S pattern. The next key support is the flash crash low at 59.47.
I would only be short below the neckline, but would fade any bounces into 49.30 target.