Wednesday April 27, 2016
Key Developments :
- Choppy intrday action, followed by the typical fed rally.
- Bullish and Bearish Cases still exist
In yesterday’s report we were quite bullish ahead of the fed but with a weak open and AAPL chunk, we took a more neutral posture. I unloaded my ES_F long pre-mkt and just sat on my hands today. There really wasn’t much compelling. As you can see below, we traded into and tested the 61.8 fib today which to this point has held as resistance. My plan here is to lean short into that, and flip long above. We’ll see how tomorrow opens. That is my thinking. The cleaner trade here is to take advantage of the momentum divergences and the potential H&S topping pattern seen below. Above today’s high’s however, we could be looking at an inverse H&S that could squeeze us above 2110. I will respect that long thesis above today’s highs but you would be risking about 5 pts to make ~50 by shorting with 2100 area as a stop. That is a 10-1 risk reward. Personally, I will look to enter small an add to the position as I get more confident in my thesis.
The Bottom Line:
There are both bull cases and bear cases to be made, but the bulls did not do enough to this point to kill off the bearish price action. I will look to be short as long as prices are below today’s highs. Above that I would be thinking more bullish. Sorry if it sounds like I’m hedging, but nobody “knows” where the market will go. There are times when we can have a high level of confidence and we can trade a bit bigger. There are others like now, where we may look for a good risk reward setup while a pattern is potentially constructing. If we are wrong we lose a little. If we are right, it improves our dollar cost avg as the trade moves in our favor. The risk reward here against today’s highs and the 61.8fib are compelling on the short side in my mind. But only if we are below those levels. Know how much you will lose if wrong. We always have to think in terms of risk reward using the patterns as our trading plan. My bet here is this could be right shoulder construction and I think I am wrong when 2100 proves as support rather than resistance. That’s how I see it right now. As always, I will post my intraday thoughts as I see things develop.
Chart of the Day:
As technicians, we don’t hold into earnings. They are a roll of the dice. Despite the bearish price action that existed in FB, they blew out earnings killing the pattern. There is plenty of money to be made without taking earnings risk.