We’ve just passed through the best sports weekend of the year – Yes, March Madness has once again worked its magic with upsets and Cinderella stories capturing sports fans’ imaginations once again.
By many metrics (other than D.R.’s level of excitement), the NCAA Men’s Basketball tournament is one of the biggest events in sport. March Madness makes more ad revenue than the NFL playoffs (including the Super Bowl).
Thursday starts the next round of play by teams that have made the “Sweet Sixteen” – the final 16 teams play in a tournament that started with 68.
But this past weekend, one of the great David vs. Goliath stories unfolded when the practically unknown University of Maryland Baltimore County Retrievers knocked off the overall #1 seed University of Virginia Cavaliers in the very first round.
It was not only the biggest upset in the history of the NCAA basketball tournament; it was truly one of the biggest upsets in all of sports.
This wasn’t a “hang tough during the game and sink a buzzer beater to win” type of game. It was a complete dismantling – a 20 point crushing of a team deemed to be the best in the land at the start of the tournament.
The Retrievers lost a hard fought contest to Kansas State in the next round of play, but two Cinderella teams have made it to the “Sweet Sixteen” – the final 16 teams to play in a tournament that started with 68.
The feisty Jesuits from Loyola of Chicago were seeded 11th out of 16 in their region but have used balanced scoring and solid defense to upset two higher seeded opponents. And the Syracuse Orange came from that same 11th seed in a different region using smothering defense to also make the Sweet Sixteen
But besides the great triumph of human spirit exemplified by these underdog wins and this tournament, why talk about it in a trading and investing article?
It’s because this most improbable of victories happened when the “little guys” figured out the tendencies of the “big bad #1 seed” and used it to their advantage – over and over again.
And that’s what individual traders and investors do – we identify price tendencies and use that edge to make profitable trades. So let’s look at how some chart formations are guiding my current thought process.
This Technical Pattern Indicates A Breakout to the Upside Soon
It’s easy to get caught up in the rhetoric surrounding the markets. Ever since the early February “inverse volatility” bubble burst sending the U.S. market to its first correction in two years, the bears have finally found a voice – and someone willing to listen.
For so long, the dialog (and the trading action) had been a one way street – and the direction was up. The “flash correction” – the fastest 10% pullback in 80 years – changed that.
We now have two-way markets. And that up and down movement has left market participants used to a one-way game looking for some answers.
Here’s the chart that I find very informative – it shows lots of things converging as we head into the Wednesday Fed rate announcement:
Price action has pushed right down against the top of the two-week sideways consolidation box from last December (the light blue box in the chart above). It’s also right down to the upward sloping trendline drawn from the lowest close of the correction.
Add that lower line to the series of lower highs made since the end of January and you have a pretty nice triangle formation. As a pattern, symmetrical triangles are most commonly seen as continuation patterns. If that is the case for this triangle, then we would expect a breakout to the upside to challenge the end of January highs. I believe this is the highest probability outcome.
Should this pattern resolve to the downside (the lower probability), then the intraday February 9th low that is 7.6% below current (Wednesday morning) prices comes into play.
An Investing Sweet Sixteen
In addition to the technical set-up we see now, let’s take a look at the fundamental underpinnings for the market now. The firm LPL Financial has published their own “Sweet Sixteen” – sixteen keys for the stock market in 2018. Here is their listing:
This is a pretty good wrap-up of what’s happening at a fundamental level. Note that the one issue that is rated as a negative (trade policy) is a very big one and it could escalate to overshadow many of the others on the list.
For our next profit opportunities, we’ll continue to buy pullbacks as long as the key levels on the chart above hold.
Great Trading and God bless you,