Tuesday January 5, 2015
Key Developments :
- 2021.90 Target acquired Eventually.
Today was pretty tough sledding. At the end of it all, we finished with a doji, inside day of virtually no direction. Futures were lower pre-market but managed to recoup their losses before the open. We opened with a slight gap up that found resistance at the old 2020 level we were talking about a couple of weeks ago. The rest of the day we really struggled to find much direction. We ultimately did capture the 2021.90 target we talked about in last nights report, but was not an easy trade as the tape was very choppy. You can see below how it ultimately panned out.
Ultimately, we can be looking at this two ways going forward. We have completed an inverse H&S, so it is possible we are forming a cup/handle below today’s 2021.94 high. So Tomorrow, we might try to be long above and only above that level. On a measured move basis, the target would be 2054.20.
Along the way, I think we need to be mindful of the potential for the rising trend-line resistance, along with the New Year’s Eve close, for a gap fill, which can sometimes serve as resistance.
It is also possible we have formed a bearish flag already and we break down. Flags can be difficult to trade as there are levels of support to compete with on the way down. I will be far more bearish below 1990. If we break below there, we can be looking at the lower gap at 1951 and the 61.8 fib at 1962-1965 (talked about this in last nights report).
The Bottom Line:
Tomorrow the fed minutes from the December meeting will be released. Let’s watch to see if the market can make a sustained move above today’s high to fill Monday’s gap. Also watch the bearish flag trendlines for support/resistance or failure of either. I don’t see much of a reason to force trades if the market remains between today’s high and yesterday’s low. I think the break and sustained move above or below those levels is the most important thing to watch right now.
Chart of the Day:
Many get very focused on the idea that a pattern, like a H&S has to be a trend reversal, rather than a trend continuation. One would have made this case in GDX back in July, but the trend continued to new lows. Patterns are not about their name or definition, but about what the market is telling us. As you can see with the H&S it tells us that the symbol in question is making lower highs and lower lows. At the end of the day, both of these can be pennants which are trend continuation. When you are watching pennants a lower high and a breakdown tells a story. So in this one, I would lean in the direction of the trend until the trend can be changed on a longer term basis. Remember, lower high’s and lower lows = DOWNTREND.