THIS WEEK’S PRICE ACTION
- Early strength is sold as H&S top triggers Bull Trap reversals back below breakout level.
This we started out looking at a cup/handle formation. (shown in pink below). We thought that triggering it and taking out the April highs would be a significant development do to the fact that the S&P had struggled to do that in past rallies. In other words, retests of previous highs were never successfully made a new high, but the retests rallies were sold instead. This time was different. We took out the prior swing high, but then immediately rolled over leaving both sides scratching their heads this weekend for sure.
As we look at the hourly time frame below, we can see this very confusion. The breakout to this point has failed, however, we have not officially killed off the Cup/Handle as the handle low held.
That being said we can see the development of a tiny H&S top (blue) that threatens this bullish pattern. If Friday’s low is to be take out this week, this puts us at best in a range bound environment.
In a range bound environment, the way I typically trade is by looking for patterns on the lower time frames (5 min) and also keep a close eye on the unfilled gaps, and use them as trade to targets. Ranges are much more of a day trader environment than a swing trade environment, so for a swing trader trading the indexes Cash is King.
I’m far more neutral here. If you asked me today what my plan is. I would say I am very likely to be a seller of strength below last weeks high, and give the benefit of the doubt to the bulls above it. In other-words, further strength Monday that gives me indication of failure to take out last weeks highs is a place I will look to get short.
That being said, looking at the 5 minute chart I will watch to see the development of this potential inverse H&S which would target a gap fill from Friday’s gap down.
Looking at the DJIA this is clearly just becoming a range than giving any type of edge to bulls or bears. We had a failed H&S top, and now potentially failing an inverse H&S. This is about a 900 point range so the break and follow through above or below the range is what will become important. I will not be surprised to see this range last well into the summer at this point, but we shall see. It is starting to feel alot like last year, where we were range bound for several months, before a huge move lower.
Here was the 2nd and 3rd Qtr trading range from last year and shaping up to be much of the same this year.
On daily chart, it appears as though we are currently holding above the down trend line for now, but below this week’s low would change that quickly.
Looking at the Russell: That sure is one nasty looking weekly candle, not one that is typically followed by strength. This is not a bullish sign at all, but bears need to confirm it by taking down next week.
On the 30 minute Russel, looks like my S&P plan. Sell strength to start the week.
NASDAQ – Same thing. Looks like a sell strength setup to me.
Breadth was flat overall for the week, but deteriorated into week end, just like the price action.
The Bottom Line:
After a good start to the week, bulls failed to take advantage of the technical wind at their back and now things are lining up to be far more range bound at best. As always, we know how price action can change quickly, particularly in this large 300 point trading range on the S&P, so we just have to be unbiased and try to adapt with the price action. I will keep you up via the daily recap, the morning pep-talk and the mid-day refresher.
Here is a video recap of what you just read.
Don’t forget to set the resolution to HD so it is easy to see the charts.
This Week’s Chart’s in Focus:
Consumer Discretionary (XLY): Keep an eye on this one. Huge topping pattern on the larger time frame with a smaller top in the right shoulder. This is a sector I will be looking in for short setups.
XME: Metals continue to look great. This was a sector I wrote up early this year when it was forming an inverse H&S formation. Now it appear so be forming a nice size cup/handle. Keep a nice eye on this one particularly above 25.
EUNF -> European banking sector -> Negative interest rates are really taking their toll on these guys. After triggering a H&S top back in December, they consolidated in a bearish flag. They are now breaking down with a 13.53 target. This is a great short setup.
GLD -> Nice inverse H&S. The way I would trade it is buy above 124 or buy dips into the green trendline. This one may need some more time to turn the 200 week MA flat before breaking out. Not necessary, but just the way I’m thinking. I would not chase it into 124 until breaks above.
SLV -> Similar to gold Started with a nice inverse H&S, and held the neckline retest, now looking to acquire first target and trigger 2nd bullish pattern (cup/handle)
IBB-> We talked about this one last week. I left last week’s chart in place for you to compare. My thoughts last week were that this was setting up to be a repeat of what we saw in Nov/Dec into the start of this year.
Last week’s chart.
This week’s chart