Wednesday January 20, 2016
Key Developments :
- H&S top pattern on S&P 500 officially triggers on a closing basis with a close below the flash crash low of 1867
- Market Tests October 2014 Ebola Low and bounces back to test H&S neckline.
Despite the big rally and some decent trading opportunities, which we will review in a bit, there is still very little to work with on the long side. Yes, the market remains very oversold, but other then the very short term (1 and 5 minute time frame charts) there is not much to love. We are still in an aggressive down trend as shown below. The series of lower highs and lower lows in a very tight down channel continues. To add fuel to the fire, we now have a solid close below the H&S neckline. It will be interesting to see if the bulls (what is left of them) can use the oversold conditions to create a bear trap reversal back into the H&S range.
Some Trades I Took Today
There were a couple of decent trading opportunities today despite the big down move. Let’s review the chart below. Around noon we create a small inverse cup/handle which acquired it’s downside target of 1812.86
From there we bounced and created an inverse H&S targeting 1851.43. Additionally the consolidation into the Inverse H&S target created a larger cup/handle which fell about 4 points short of it’s target into the close.
The Bottom Line:
We now have an official close below the neckline. Watch to see if there is any bear trap type reversal tomorrow or if overnight strength is sold once again to follow through on the breakdown. Below the H&S neckline suggests further downside, but price action is king. The H&S Target is 1599.31. If we use the low of the 2012 Correction to the May 2015 High, the 50% retrace is ~1604. Just a few things to keep in mind.
I will also note, I am sticking to intraday trades at the moment. The reason is mainly because although we are below the neckline and I should be holding short, the oversold conditions tell me there is too much risk of a very wicked dead cat bounce. Personally, I would like to see things calm down for a few days to work off those conditions, but that is wishful thinking, it is unlikely the market will grant me that wish.
Chart of the Day:
Did you happen to notice where the XBI bounced from today? The 161.8 Fib of the Oct/Nov Rally. Interesting? I’d say so.