Todd Harrison: The Stock Market Flirts With a Massive Breakout

By Todd Harrison  FEB 25, 2014 11:30 AM

Will Turnaround Tuesday catch traders offsides?

 


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Everyone and their cousin Daryl thought the market would bust a move through S&P (INDEXSP:.INX) 1850 yesterday and register a fresh breakout to all-time highs. All session, wire to wire, we saw 3:1 positive breadth, broad leadership, and heck -- they were trading above the all-important technical zone.

So what shot did the market up and pull? It heaped supply on the tape starting at high noon and eventually broke it back below the Maginot line into the close. That price action left the anticipatory players -- all the traders who got on board the Acne Express -- long inventory . . . sans their catalyst.

As of this post, the S&P remains several handles below technical validation (and for many, breakeven on their purchases), which makes today's action of particular interest.

If the bulls can rally their troops and recapture the flag, it will be game-on in Matador City. If they can't -- if the market continues to trade below S&P 1850 -- we'll have the recipe for an offsides by wrong-footed traders on today of all days, Turnaround Tuesday.

Why is S&P 1850 so important? Closing above that level would trigger an inverse head & shoulders pattern that "works," through a pure technical lens, toward the S&P 1960s.

And how do we get that groovy target? You take the "shoulder" minus the "head," and add the difference back to the "shoulder." Or, in this case, 1850 minus 1740 (110), added back to 1850, arrives at 1960ish.



Technical analysis is one of four primary metrics -- fundamentals, structural, psychology are the others -- but should the tape close above S&P 1850 and remain there, that's what the charts are telling us.

And yes, every technician is watching this, so there's that. The path of maximum frustration rarely rewards the consensus, or at least it rarely used to.

Random Thoughts

R.P.

Twitter: @todd_harrison

No positions in stocks mentioned.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

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