Wednesday January 6, 2016
Key Developments :
- Bearish flag, sees breakdown and follow through.
- Market Close below December 2015 Low.
With weakness overseas related to china markets gaped lower, triggering the bearish flag we talked about in yesterday’s report. Interesting enough the target for this flag is 1962.07. The 61.8 Fib retrace is at 1962.35, so it will be interesting to see if the late afternoon strength is sold tomorrow and the downside target acquired.
Bullishly, I don’t see much to work with just yet. The bullish scenario that could play out is a bounce back starting tomorrow constructing an inverse H&S that would look something like this. Until something far more bullish develops, the bear flag is my top priority.
Closing below the lows of this 2 month trading range needs to be respected, particularly if we see continued selling below it.
This is a potential bearish scenario to keep in mind. Basically, I am thinking the 61.8 is defended on first test. We bounce to retest 2000 before rolling back over to test the 2015 lows. We should note that the market is approaching oversold conditions, so an oversold bounce in the coming days is very much possible.
The Bottom Line:
Watch for follow though on the bearish flag pattern in motion, down to the 1962ish level tomorrow and see if the market can us it, along with oversold conditions, to find support for a bounce back up to or back into the 2 month range.
Chart of the Day:
XDN.X – Japanese Yen USD
If money is indeed flowing out of the equity markets, one place it may be going is into Yen. I think this is one worth keeping on your radar, as further strength here, will likely have inverse effects on the equity markets.