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Are we looking at the short of a lifetime? – TVO MB 2-19

The talk of the town, if you’re a technical trader, has all of sudden shifted to the Head and Shoulders pattern now forming on the weekly chart of SPY and the other indices.

This is just the sort of thing that stirs the YOLO side of a lot of bearish folks, as they set their sights on what seems like a short for the history books. In reality, though, the pattern doesn’t really exist yet and even if it was already fully formed, the “correct” spot to short it would be the neckline, not the right shoulder… but I digress.

As far as volume and market internals, the way the current market movers feel about the weekly H&S is either one of three things: They don’t see it, they don’t care, or (most brutally for the bears) they think it’s insignificant. If you’re having a hard time with this one, I’ll give you a hint: simple logic will tell you that the third option is the most likely.

The Heat Gauge was CHILLY and as flat as a pancake on Tuesday except for a quick sizzle at the open. Overall volume did fall, but that is a completely normal reaction following the heavy accumulation we’ve experienced in the past week, as well as the past month… Ok, since the beginning of the year, for that matter.

I’ll say it again in case you didn’t hear me say it before. There is PLENTY OF VOLUME to sustain this rally further, folks. The low volume argument just does not fly. Which is probably the reason why so many bears are left to fixate on the Head and Shoulders, even though it historically succeeds about 50% of the time… but yet the fantasy lives on. -MD

Sentiment: HUNGRY – Markets are accumulating at an accelerated rate and big institutional buying is heavy and aggressive.

Volume: -5% – Today’s volume was lower than the previous session.

Real Feel: CHILLY – Bulls were in control of the session with substantial selling under the surface.

Cycle: OVERBOUGHT III – Retail investors have bitten off way more than they can chew.

Portfolio: HEDGE – The market is over saturated and long-term investments warrant some protection.

Next Day Move: SIDEWAYS - The probability that SPY will close positive in the next session is 53%.

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