Tuesday January 26, 2016
Key Developments :
- Gap and Go
- Oil stages big rally (up 8+% intraday)
- Market defends inverse H&S with a rally off the VWAP lows.
- Still trading below last week’s highs which are acting as key resistance heading into the Fed tomorrow.
- AAPL earnings a non-event after the close.
- All eyes on Fed tomorrow.
Tomorrow is Fed day. The first meeting of 2016.
So let’s keep tonight’s report and trading plan simple.
1) We can see below and inverse H&S, that had it’s neckline tested and defended yesterday.
2) A smaller inverse H&S now above the neckline.
This is telling us that at least for the moment, the dips are being bought.
3) 1908.85 is last week’s hammer high candlestick high. We can be long all day long above that level, playing for the inverse H&S target of 1967.41.
4) We are neutral between 1971.91 (September lows) and last weeks high. That is where we stand right now.
5) The only bearish scenario I see at the moment, and we all know that can change rather quickly is a break of this wedge to the downside. Below that trend I would be far more cautious.
6) A couple of other small things to make note of. The VWAP from the lows held as support in yesterday’s pull back.
The Year to Date VWAP is right at the upper wedge trend line resistance. Keep that in mind if last weeks highs on the SPY (190.76) are taken out. a dovish Fed rally (to be expected) can make that happen.
In the big picture
1) we are still trading above the neckline (at least for now) That is why the sept low is critical.
2) Stochastics are working off oversold consolidation, rather than price at the moment. We are no longer oversold on the stochastics.
I remain bearish big picutre, but a continued oversold bounce is not out of the question here. Particularly a dovish Fed might deliver this.
The % of stocks below 40DMA is still below 20 but it put in a lower low on the down move and continues to make lower highs and lower lows on any bounce. That will likely change when a bottom is in.
The Bottom Line:
We have bullish price action to work with (immediate term) but we are trading right at resistance (mainly last weeks highs). Watch to see if the market can make a push above last week’s highs which would be inverse H&S follow through. That is our number 1 priority tomorrow. If we are to trade back below the September lows, particularly with bearish price action to confirm, we would go into a more defensive posture.
Chart of the Day:
Here is a stock in a multi-year down trend that looks like it wants to setup for another move lower.