Wednesday December 30, 2015
Key Data points:
Key Developments :
- 2 H&S Reversal Patterns Fire and acquire targets downside targets
- Cup/Handle breakout from yesterday on life support and in danger of failing.
- Strength continues to be sold.
Using the H&S pattern we closed with and spoke about yesterday, the market gaped and moved lower this morning. This was followed by a minor bounce off of the 2071 support, and then sideways chop around the neckline the rest of the day until about 2:30, where the follow though on the 2nd H&S pattern found sellers. I can’t remember the last time a pattern like this was so drawn out, but if you stuck to your the initial stop above the right shoulder, you were in line to profit into the close on the short side. It is rare that a pattern acquires it’s target penny for penny, but it did today. The target off the H&S top was 2061.96 and if you check the low of day on SPX, it was 2061.96. If nothing else, this tells me, the programs were 100% in control of the tape.
So where do we go from here?
This has been a very tough tape to get a handle on and have long term conviction on. However, let’s think up a few scenarios in our head so we can be prepared either way.
Yesterday, we did not only make but closed above 2076.71, confirming a higher low and higher high on a swing time frame. Remember this is the first case of that occurrence since November 3rd. So Let’s see if this weakness can be bought keeping the cup/handle triggered yesterday in play. Maybe we fill the 2056.62 gap, and form a reversal pattern to take us higher early next year.
At the moment, we have closed back below the cup/handle neckline we spoke about yesterday. Taking out the cup low of 2044 would officially kill it off.
The way we might see that happen is with the formation of a H&S here in this trading range. I show this in pink below. We may also just ride selling momentum back into the range lows. We just have to watch for levels to be taken out and the way they are taken out.
If you go back and review this range between ~2000 and 2080, the reversals from the top of the range and the bottom of the range have been very clear. When we get there, bottoming or topping patterns have formed, designating a near term top or bottom. This has been the case really on all of the swings since November. It would be helpful to your trading to go back and review these tops and bottoms in your chart software.
Now that being said, everything in between has just been range bound momentum. That is once the first or 2nd pattern form and acquire target, the momentum continues in the direction only until the next reversal pattern forms.
If this continues, we likely expect more selling ahead until the next reversal pattern appears, which we do not have as of yet.
The Bottom Line:
The market remains range bound. The bottoms and tops of the range have been clearly designated by bottoming and topping patterns and momentum has carried the way. Expect the selling to continue until the next bottoming pattern occurs.
Chart of the Day:
I would only own this one above the neckline of $12, but could challenge recent highs around 14.50. Let’s see if this breakout can continue or strength is sold.