Chart of the day: Dow Risk-On Rally premature when sale seems likely

This morning it started to rise over the perceived relief of global tensions. With the rate war between the US and China, it seems that the geopolitical risks are still high. For smart traders, this could be an important opportunity for a short setup.

Global risk appetite has increased, thanks to the relaxation of several geopolitical situations, including the fact that China has reduced its extradition bill in Hong Kong; The growing political stability of Italy and British politicians seem to be withdrawing from a no-deal Brexit.

However, markets can easily be premature, according to conclusions from rating agency Moody & # 39; s. According to them, the most likely scenario for the US-Sino trade war, one of the two biggest headwinds for equities in more than a year (the US interest rates being the other), is that it will escalate further.

While the furious TIF has consistently repressed annoyed traders trying to determine how stocks will go, there are signs that the market generally does not expect a quick solution to the trading situation. Technical charts now clearly project that.

Dow Jones industrial average daily graph

Despite today's wave, the YM found resistance below the 26,400 level, the top of a congestion since the beginning of August. The range is considered an interruption within a short-term trend, with short sellers taking a profit after an 8% drop in just five days, which occurred between July 31 and August 5.

The upward bias, albeit with a flat top, may suggest that noisy buying is gradually being absorbed by determined supply. A negative outcome would show that supply has drowned out all demand at these levels and is willing to lower offers to find new willing buyers. That is a sign of despair.

The fact that the assumed continuation pattern develops while the price tries to rise above its upward line since the bottom of December is a projection of the conflict between bulls and bears amidst the macro outlook for stocks with the trade conflict in the background .

The failure to climb back above the upward trend shows weakness. A downward breakthrough would mean another leg down and the potential for a medium-term reversal.

This is clearly seen when it is thought that the range may develop a different, larger pattern, an H&S top, the left shoulder of which developed in April. A completion of the continuation pattern would also bring the price below 200 DMA.

Trading Strategies

Conservative traders must wait for the completion of V&G.

Moderate traders would wait for the follow-up pattern to be completed.

Aggressive traders now risk a short position, depending on the resistance of the continuation of the pattern summit

Trade sample – short position

Input: 26,370, lower than today's highest loss: 26,600, above the highest price amidst congestion Risk: 230 points Target: 25,910 Reward: 690 points Risk: Reward ratio: 1: 3

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