Merry Christmas!

Right in time for Christmas – it’s on! No matter which way you count it – another trend day brought us right to the neckline of that inverse H&S developing on the S&P 500:

What you can usually can expect is a breach up followed by a fake out drop to the downside to shake out some weak hands. And once some battered retail schmucks have been taken to the cleaners we then may get resolution to the upside. I’ll show you an example of just that further blow. Now, per the rules – if this thing makes it all the way to target then it should get us to 1360 (i.e. current reading plus the 100 handle distance from the head of the H&S).

What’s a bit screwy about this is my UDN (inverse Dollar) correlation chart – obviously ole’ bucky has been making upside progress and thus far equities are happily shrugging it off. I have seen this happen in the past – the rubber band gets stretched and stretched until suddenly you see a big reversal come ‘out of nowhere’. This chart is why I remain a bit skeptical about the resolution of this – BUT it’s Santa time and pushing this turd over 1300 is most definitely possible during no-vol holiday tape.

Now here’s my USD P&F chart and despite all the upside today we got a low pole reversal on ole’ bucky – very interesting. If nothing else this however shows us a great example of an inverse H&S formation – and per my above musings we had that first breach to the upside followed by a fake out drop and then of course the reversal. Bottom line is that we have two in principle opposing inverse H&S formations at this point – which side is going to win? Equities or currencies? 😉

Astute readers may have noticed that the H&S formation is much clearer on the H&S chart than on the time based chart – another reason why I always look at both. It’s easy to not see important price behavior when distracted by all the (news induced) noise. But in the end the Point and Figure charts have always treated me well and have been much more valuable for my trading than reading MSM shill or panic pieces.

And here’s the P&F for the SPX – rather clear what’s going on right now and it seconds what I’m seeing on the daily chart.

Bottom Line: I gave the bulls the benefit of the doubt and thus far two trend days in succession appear to have proven me (and Volar) right. The setup right now is technically bullish but we are running out of time and the best scenario I could imagine is for a resolution of that inverse H&S on the SPX by the end of the year. The bulls are taking advantage of seasonality and what happens in January is anyone’s guess at this point. In the interim I remain mostly in cash except for the occasional setup on the commodities or FX side.

Now, before I run let me wish of you and your loved (or despised) ones a Very Merry Christmas. Not a happy new year just yet as I’ll be chiming in here a few times next week. However as most of you will be gone plus there is little edge I’ll keep my observations brief. Unless of course something really evil or exciting happens 😉

Remember that the NYSE will be observing a Christmas holiday on Monday, December 26 – there will be no trading and I expect to take the day off.

Cheers,