This Week’s Price Action
- Flush lower followed by a huge move higher to wipe out virtually all of the Brexit downside.
- Market remain range bound.
This week was wild. We saw continued post-Brexit selling on Monday form a double bottom into the close. The gap higher Tuesday completed the pattern and formed a cup/handle which acquired it’s targets and squeezed the market very fast higher. It erased virtually all of the Brexit panic. At this point the market remain very choppy and range bound so it is best to be far more cautious until things get clearer. There were a couple of themes that stuck out to me in my review this weekend, which you will see in the charts below, but will quickly summarize.
1) If the next pull back is light we could be developing an inverse H&S near highs for a breakout.
2) Many of the sectors that broke bottomed first in Feb and led us higher, are now seeing continuation price action patterns (cup/handle breakouts)
3) Watch the Russel very closely. (you’ll see why in a minute)
3) Europe still Stinks
4) Precious metals want higher
5) China is still a ticking time bomb
6) Japan could be in trouble.
7) Emerging markets are trying to breakout of a bottoming pattern, so keep an eye on them.
The first two are suggesting an upside breakout is very possible and is going against what many think should be conventional wisdom, but we just can not rule it out just yet.
Let’s review the charts to see what is going on and point out scenarios that we should watch for in the days and weeks ahead.
Swing Time Frame (30 min) :
The bears have their work cut out for them. I think we have to expect any dip back near 2050 to be bought and potentially setting up a big breakout.
Still in a 300 point range big picture, but could we see the makings of a breakout pattern developing? Very possible.
Swing Time Frame (30 min) :
Very choppy range bound. The bullish scenario would be something like this.
Not much has changed. Sill in a range at resistance.
Swing Time Frame (30 min) : Watching for one of the two scenarios to potentially develop. At this very moment, we have 3 lower highs, suggesting advantage to the bearish scenario. But no real edge right here at this very moment.We need to continue to watch the development. (i.e is this a lower high, or will a higher low be set?)
Very very conflicted. A move and hold above 1200 would seem rather bullish, but trading right into trend resistance, which could be a larger bearish right shoulder. I have been saying all week I am watching this closely for clues as to where the US Markets are headed big picture. The Yellow H&S is what we are seeing on the swing time frame above.
Swing Time Frame (30 min) : The most bullish scenario would be to see something like this develop. Currently no major edge.
This is either consolidation or a top. I am watching for trend breaks on this one.
Pretty strong uptick in breadth this week. Went from 40 to ~60 on a weekly closing basis.
The Bottom Line:
Despite the wild action we are still range bound. From an index perspective there is very little edge right here at this time so best to monitor for crash or breakout price action and look at opportunities elsewhere. I have shown above what I am watching for, but really there isn’t much edge in current charts. We all know that can change, and if some of these setups I am defining present themselves, I will strike. However, we are still range bound and patterns in ranges many times are very deceiving, so I need to see far more develop to have any confidence there will be a big directional move up or down and we just don’t have that yet.
Yes, one major uncertainty (Br-Exit) is behind us now but there are more on the horizon. The Fed at the end of this month and the US election just 4 months away.
That is my stand on the indexes, however, there are edges to be found. For example Utilities and Precious metals and their miners have been great trades. I reviewed a ton of charts globally over this past week and came to some conclusions which I summarized in the intro. Let’s now look at some other charts that caught my eye.
This Week’s Chart’s in Focus:
Let’s review a few charts that I consider worthy of your attention:
Singapore (EWS): Lots of things to like here.
1) Failed breakdown below a larger range with bullish momentum divergence.
2) Retest of range held (right shoulder)
3) Holding Vwap off the lows.
Now just needs a breakout above 11.41, but keep on watch-list. 20% upside potential.
Coal ETF (KOL): The coal industry is breaking out of another bullish pattern. This was a setup we detected and posted about in early Feb. I posted this on Valentines Day. http://higherlow.com/is-coal-trying-to-bottom-again-kol/
Suncoke (SXCP): This is a coal play
XLY : Consumer Discretionary
In the last two weekend journals, we discussed this topping pattern in the XLY. This acquired it’s target by 2 cents in the sell off, followed by a sharp rally.
Breaking out of a bullish Inverse H&S with a target of 147.69. Silver looks very similar.
EEM: Chart still looks like a healthy bottoming pattern, but is yet to breakout.
XLV -> Healthcare
Watching this one for a breakout above the recent highs.
XLE -> Feels like this one need more time and even a deeper pullback before it can go higher, but none the less something to watch for over the coming months.
Japan Nikkei – > Better hold this area of support or could be in for a larger crash. Keep an eye on it. The Yen is still moving higher which is not helping this market.
London FTSE – > Broke out of inverse H&S post brexit. Let freedom Ring!
Can’t say the same for most of the rest of Europe. Including Germany. Most charts say to stay away from Europe in general.
China still has a H&S top in motion targeting 1570.29. I see no signs of a reversal, just consolidation. This is a ticking time bomb and looks like it is just a matter of time.