Tuesday May 3, 2016
Key Developments :
- Trend support continues to hold firm.
- Bears still have not been able to acquire the downside target at 204.16 on SPY. Make note of that and respect it as a win for the bulls, at least for now.
The bulls continue to fight and hold up this tape. If you read last nights report, you know we came in short today. However, the market found some support at that pesky trendline again and formed an intraday inverse H&S.You can see this pattern above. If you missed the intraday tweet, you can find it here, where I showed how I traded it. Generally speaking I covered my short and went long in one order when the trade brokeout. I then took profits at the target and hung out the rest of the day as the market ground lower, but closed above the days lows.
At this point I’m taking a neutral stance because the Bears have had 2 excellent chances to complete the H&S target and have failed due to the trendline support. Now we must respect that line and really think long down here near it and wait for more upside to get short. But with a higher intraday low above that tendline into the close how can we possibly short into a level of support. The risk reward isn’t good enough, and not even close to where it was last night when I went out short.
The reality is that area to the left of this chart is price support and the dip buyers are buying into it on first test. This is normal and needs to be respected until we have price action to give us a good short entry, or it becomes resistance.
We can certainly make the case here that we should test this lower trendline, which is also our H&S target at 204.16. It’s just that with all that chop to the left and a higher low into the close, we are in a spot where neither side has a compelling advantage. One will certainly win, but it feels much more like a coin flip than it did yesterday.
There are days when we have a good feel for where the market will go next. We are comfortable taking positions overnight. Today is not one of those days. At least for me.
The Bottom Line:
The bulls are defending this trendline support. It feels very similar to how they defended 2020 on the spx back in December. The bears ultimately wore them down. Gun to my head, I suspect the same will eventually happen, but it doesn’t mean we can see 208.50 again first. Feeling neutral here.
Chart of the Day:
Patterns work on all time frames. Yesterday I posted after the close that we should think short into 94.10 and long above it.
AAPL had bullish plans. It opened up above the support and then spent a good hour in tug of war mode. However it was very bull flaggy near the top of the range. If you look closely, it create a higher low around 10:55 and then broke the flag. That is your buy point, with a stop below the low. Take profits at the target.
This works on any time frame, this just happens to be the 5 min.