Tuesday January 12, 2016
Key Developments :
- 3 Straight Opening Up Gap sold
- Potential Inverse H&S forms, but fails to trigger into close.
For the 3rd consecutive day, the Bears were angry after the open, selling opening gaps into red territory before Bulls emerged in the afternoon. Coming into the day we were looking at a very weak inverse H&S pattern. I say weak because it was constructed with only 1 day of trading action. I usually prefer 2 or more (the more the better) to have my highest conviction. The pattern target was 1959. However the band of resistance up at 1950, was just too much and the pattern ultimately failed.
(Yesterday’s 1 day inverse Fails to acquire full target)
However after today’s action we are left looking at a very similar price pattern. However this one has been constructed over 4 trading days. A breakout of this pattern could lead to a midweek rally to potentially fill last Thursday’s down gap.
#1 PRIORITY TOMORROW IS THIS PATTERN. ABOVE 1947.50 we can be long into 1993.66 BUT ONLY ABOVE 1947.50. Below there all bets are off. Take note of resistance points along the way.
The pattern above looks very similar to the one we had on 12/21/2015 (see below). The difference is the former broke out and held into the close. The current pattern has not broken out yet.
The Bottom Line:
Watch the bullish inverse H&S closely to see if it can trigger and see follow through. During 2015, big rallies into opex week were common and with the sell off last week and oversold conditions that are present above 1900, it is very possible we see some strength to fill the 1990 gap. The price action will lead us and this bullish inverse H&S should be our top priority as it is the only pattern notably under construction in the immediate term.
Chart of the Day:
XDN.X Japanese Yen US Dollar. There is a reason we watch multiple time frames closely to give ourselves the edge we need to be successful in this business of trading. We have been watching the charts of the Yen (aka risk off safe haven) closely since late last year. Looking at the daily chart, there is the clear presence of the only chart of the inverse H&S. However, on the 30 minute time frame, the chart is telling us that this one wants to take a breather. There we see the presence of a H&S topping pattern. Since this has been the inverse of the equity market, it also gives us a clue that the market may be in the mood for a bounce.