Wednesday February 3, 2016
Key Developments :
- Market Close back above 2020, with a volatile day, and unfilled upgap.
- Potential Inverse H&S could spark the Santa Clause Rally Most are expecting.
Looking at the chart above it was kind of a wild day. The gap up open was sold all the way into support at the September 2015 low. That area was bought rather aggressively. Yesterday’s low held as resistance on the first test, but ultimately the bears could not hold it down and we triggered a Red Dog reversal short squeeze off the 2pm higher low. This helped the market close higher on the day.
From a bullish perspective, I will look at it like this.
Maybe we are shaking out weak hands and creating a larger inverse H&S pattern. We are still closing below the trend support from the 1/20/2016 bottom, so we need to see that recaptured tomorrow as a first check point, and then we want to see Monday’s highs taken out. That will keep the bulls in control for a while at least.
From a bearish perspective, onc can see why Monday’s high is so important. Still below the trend, it is possible we are creating a right shoulder with a price target down below the Jan 20 lows.
The Bottom Line:
The bears really are on the goal line for taking this market lower in my opinion. The H&S pattern just above the September lows could really get things rolling to the down side. However, the bulls are not giving up without a fight and might have one more last gasp in them to retest 1970-2000 on the SPX. Concentrate on the 2 patterns presented above to see Which is taken out first, today’s low or Monday’s highs. To me those are the key levels to watch right now. Everything in between is likely to be much like the middle of last week. Frustrating, choppy, directionless price action.
Chart of the Day:
This is one we continue to talk about as it is considered the Risk Off asset. With 3 of the 4 major indexes closing higher today, it is interesting to me that this was up nearly 2% this suggests to me, something is out of sync. The pattern shown below is suggesting money moving into this Risk off Asset. So let’s continue to watch it closely along with the price action in the US indexes.