Added a video Recap this week too
- Bulls on Parade
- Inverse H&S acquires upside target and appear to be triggering a cup/handle for higher prices ahead.
- Absence of bearish price action, right here right now, far more bullish outlook today. However that can change rapidly, so stay in touch.
There is an old saying in trading: “From failed moves, come fast moves” and we need only look at the price action from the Thursday (5/19/2016) low thru this past Friday’s close (5/27/2016) to see exactly what that means. Two weeks ago I wrote a very bearish weekly report, as the bears were on the goal line of triggering a very bearish H&S topping pattern, which they ultimately did, only to see the Bulls trap them. This move was telegraphed within the price action as we noted in the daily reports, so there was no reason to be sitting in any sort of short position, particularly with the gap up Tuesday. This move demonstrates why we must monitor price action closely within the daily candlesticks to get the most accurate view of what is going on. Doing so not only got us out of our shorts but long for a good part of this move. The lesson here is clearly, the more we plan, the better we can react to changes in the price action, which is the only thing that matters.
Coming into last week, we were on alert for 2 things.
1) The potential that it was merely OPEX shenanigans that created the bear trap and we would roll right back over and continue the bearish topping pattern
2) If the former was false the inverse H&S potential.
Number two played out very quickly after a very tight trading range Monday, with a gap out of the pattern on Tuesday morning.
I think you remember, I was short some Russell Monday, quickly covered for a small loss Tuesday and went long. These are the types of reactions that can only occur with planning. I never have to think very much in the moment, I react based on my plan that is why I do these weekend reviews, to look at the big picture and we continue to plan every night, then every morning…wash ->rinse-> repeat.
In addition to last week’s journal, I wrote this article about the bullish case for stocks. We saw the first part of this play out with the bullish pattern completion this week. Currently we still see no bearish price action, but I want to emphasize a few hurdles we must keep on the Radar. Bulls still need to prove it here, but the price action is suggesting they may want to.
Checklist of what we need to watch for:
1) April 2016 swing high at 2111 (Absolutely critical to the bull thesis)
2) November 2015 High at 2116
3) May 2015 swing high at 2138
These are still 3 major levels the bulls need to clear in order to officially break us out.
For now we must only concentrate on #1 the April highs. If you are down 3 goals in a hockey game, you talk about getting one, not two or 3, ONE. So right here, we want to focus on what is happening into this April high at 2111.
The pattern has been to put in a high (April) and then failing on any and all retests. So taking out the April high at 2111, would change that pattern and be a big win for the bulls. It would be a change from what we have seen in recent rallies and may give us a clue that this time is different.
If they can do this, then we concentrate on number 2 and 3 above.
This chart demonstrates what I mean. The April high is still standing, and MUST be taken out to confirm any kind of big picture bull thesis.
The question now becomes is there any further bullish price action under the daily candlesticks suggesting that this may occur? I believe there may very well be!
We must first note that we are a bit overbought here into this resistance level, so a pullback to retest this longer term trend, might be healthy and something to be aware of. Not necessary, but possible.
If we look at the 30 minute time frame, it appears as though we are triggering a cup/handle with a target of 2162.85. The handle is very very small, so further digestion of last weeks move would be welcome here. It is possible the April high acts as some resistance, so we can see some volatility in this area, but at this point that is how I am looking at it as there is nothing bearish yet on the radar, so that must change again to think otherwise.
This pattern above on the 30 minute time frame is critical and acquiring the (2162.85) target would trigger a much larger Range Breakout above last May’s 2138.
The R2K – Still sitting just below 61.8 Fib from Jun 2015 High to Feb 2016 Lows. Potential inverse H&S just below. Big win for the bulls to trigger this.
DJIA – Also completed it’s bear trap this week. Holding the descending trend support. Now looks like a double bottom cup/handle. Still a wall of resistance above, but nothing bearish to work with here at this very moment
NASDAQ COMPOSITE – On a swing time frame is still setting lower highs and lower lows. However there are some signs this could change here. We want to monitor this price action closely to see if a cup/handle can trigger.
Saw some improvement last week moving from 47% to 62% of stocks above 40DMA.
The Bottom Line:
The bulls are on the goal line of triggering a much larger rally above the 2015 highs. https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0ahUKEwiJisO5ooLNAhWBOz4KHb3wDwAQyCkIHzAA&url=https%3A%2F%2Fwww.youtube.com%2Fwatch%3Fv%3DU7rPIg7ZNQ8&usg=AFQjCNFykj4cTk2Jqhxf3LNVAd890KP6bA&sig2=c1x8I0XgYXAGqZ6IvprYcg” target=”_blank”>The goal line is not victory, just ask the Seattle Seahawks. We must watch for signs of weakness, but align ourselves with what we see, not what we think.
I don’t know, nor does anyone else in the world know how this will play out. All we can do, is align ourselves accordingly, to take advantage of a potential very large move higher. When all we have at the moment is bullish price action, after the bears failed miserably to take advantage of an H&S top, we have no reason at this very point in time to not just play what we see. Is a bull trap possible here? Of course, but just like the bear trap, the market will show it’s hand and we will react. Until it does, we trade with the price action and right now that is bullish. Stay tuned on Twitter and follow the daily reports you get in your email, and I will do my best to show what I see. We want to be prepared for a bull trap, but not be scared to align ourselves with current price action. This is the top of a very large (300 point) trading range. We need to be very focused on what is happening as to not miss the next big move.
This Week’s Chart’s in Focus:
Let’s review a few charts that I consider worthy of your attention:
Transports (IYT): If you remember over the last two weeks we were looking at a double top pattern which the bears failed to take advantage of. It is still sitting above that shorter term neckline and a further move north could trigger this larger inverse H&S.
We must watch this closely as this here too would be a big win for the bulls.
This risk off asset is breaking it’s up trend and should be watched closely. Further downside is also a win for the bulls.
SMH-> Semiconductors A.K.A “Risk On” Caught a massive bid the last two weeks. Taking out the December highs will trigger a double bottom targeting much higher prices ahead. Watch to see if it can be triggered.
XLF->Keep an eye on the Financials as they test this downtrend line from last year’s highs. A break north would be again, another win for the bulls.