Tuesday May 17, 2016
THIS IS MY OPINION, AND TO BE USED FOR INFORMATIONAL PURPOSES ONLY. NONE OF THIS IS A RECOMMENDATION TO BUY OR SELL ANYTHING. DUE YOUR OWN DUE DILIGENCE. THIS IS MINE, I AM ONLY SHARING! NOT FACT OPINION.
Key Developments :
- The bull case continues to deteriorate as any sign of bullish technicals is sold.
- DJIA, R2K Trigger H&S topping patterns, while NASDAQ and SPX hover above their respective necklines.
Never take it for granted. We must continue to hunt for places our thesis is wrong, particularly until we see further follow through on these technical setups. It is still EXTREMELY possible they can bear trap this thing. That being said, I will sleep far better tonight as a bear than I did last night. Trading is uncomfortable most of the time and there is a fine line between over thinking things and picking a place you are very likely wrong. Being wrong is okay as long as we admit it quickly and get out of the way. This is precisely what we did yesterday. We knew the place it could squeeze, we saw the signs of it, we got out of the way and when the dust settled closer to the close, we re-established shorts because our “PLAN” was to sell strength until the bulls could prove to us that this is not a H&S top. Today, they continued to fail to prove it, despite the short squeeze triggering on the transports that we talked about yesterday. Honestly I thought that if this could happen it would rally the markets. It really did not. Instead we just traded in whipsaw action all day until dumping in the last 2 hours, apparently on some fed noise. Around here, we let CNBC make the noise and we just trade the action. I mean come on guys and gals. We had a very obvious inverted Cup/handle pattern which I diagram up top. Does the reason matter? If it breaks down you go short, if it doesn’t no trade or very tactical. Why does the reason matter to anyone? All this stuff does is allow your mind to take over and interfere with the only thing that matters. PRICE!
In my mid-day note I said, don’t get caught flat footed. The point was monitor the price action for bullish reversal patterns, not short squeezes as a place to cut and run or turn bullish. The bulls were trying like hell to turn it, but by 2pm the price action deteriorated tremendously and all of those patterns were crushed. So can the bulls mount a come back here? Sure, but there is very little price action for us to worry about “for now” For example, a gap and go tomorrow, will still be seen as a last ditch effort squeeze rather than having anything bullish to work with. The down sloping trendline and last weeks highs are still huge hurdles to overcome. Even with yesterday’s rally, there was zero follow through and we could not even touch it, let along regain it and last weeks highs. This tells me the bears are trying to take a foothold on this tape and if that changes, trust me, I will be screaming from the mountain tops.
Let’s take a look at some chart to see where we stand:
S&P 500: Sitting right on the neckline. Clearly making lower highs and lower lows. Bulls need to change that pattern and regain neckline and last weeks highs to take control back from the bears who are in the drivers seat. That being said, this is a tough place to establish a short, better to wait for pops even if that is below current levels. Chasing in the hole can be a pain trade as we saw for late shorts Friday.
NASDAQ sitting on the neckline. Inverse H&S risk negated for now.
Russell broke down below it’s neckline creating yet another lower low. This pattern is triggered, watch for neckline to become support again to change the down trend.
Triggered pattern, same as Russell. Neckline needs to become support. They tried today as I highlighted in my mid-day post, but failed.
The Bottom Line:
Bears are on the goal line here of triggering all of the large topping patterns as we discussed in the weekend journal. But never stop looking for potential bear trap price action. Things look bad, but if there were something that changed the way the market felt, it can catch people off guard. I personally have been leaning bearish and maintaining my shorts, but will remain on the prowl for things that go against my thesis. Although I see very little in the works, I will not take things for granted.
Chart of the Day:
Below is a chart of IYT, which we discussed in yesterday’s report. This morning it triggered and very quickly ran twords it’s 138.93 target. It ultimately failed at it’s parallel line target, but in reality is still alive until it takes out the shoulder low at 135.50. Below that, it clearly triggers the larger double top pattern with a downside target of 127.13.
There are a few things one could take away from this.
1) Why shorting in the hole can be painful.
2) What to watch for in a potential bear trap play.
3) If you want to sell strength, a place you might want to enter is at the target acquisition.
It is the constant study of price action and how things react at different levels that will make you a successful trader.