Three market factors lined up yesterday to realize the biggest advances for equities in six weeks. It rose more than 900 points and reached almost 4%.
The three catalysts: a potential coronavirus vaccine; even more government incentives; and the relaxation of lockdowns leading to a return to business activity.
Yesterday, Moderna (NASDAQ :), a Cambridge, MA-based biotech, announced that they had had early results, which had encouraging results with an experimental vaccine for COVID-19.
After warning last week that the economy may lag another eighteen months, the Fed chief, Jerome Powell, became more positive, saying that the central bank is far from running out of ammunition. is.
Reopening economies both in the US and worldwide.
Together, developments have accelerated American markets, making them all higher. What does this mean for the trajectory of shares? We do not know. However.
But we must point out that we have been pessimistic so far because of the successive bearish patterns. We are now about to rethink our previous bearish calls.
Why have we been bearish so far? First, we mentioned an upward trend in the short term, after the price completed an ascending series of highs and lows on April 7. In late April, when traders failed to maintain the advance, which would eventually have completed a rising wedge – a follow-up pattern – we saw it as a new bearish move. After all, it resumed what was shown as the underlying downward trend, after diving from 38% from its all-time high in February to its lowest point in March.
Finally, an immediate, second bearish pattern developed from the very first bearish pattern – an H&S summit. The reversal pattern, which confirmed the bearish wedge, was completed on May 13 after it fell below the neckline, the trendline connecting the lows of what seemed to be a top.
The activity on May 14 extended that penetration, but only on an intraday basis. Prices rose on Thursday to close slightly above the neckline.
That in itself is not necessarily significant, nor was it an extra minute of Friday. The price was still in the neck, suppressed by the 200 DMA, suggesting the risk was on the downside. However, we noted that the high trading volume on both days was a cause for concern, but we stuck to our bearish stance as price is paramount.
So why are we doubting our bearish call again? Monday's wave, supported by volume, popped above 200 DMA to the top of the H&S, shaking supply-demand dynamics within.
We are concerned that traders may have settled positions, which could lead to investors being forced to add new long positions, disrupting the bearish patterns developed so far.
Such an eruption would reverse the flow of supply and demand in the opposite direction, raising another leg.
Nevertheless, we are not yet ready to make a bullish call. While the H&S has been voided, stocks should hit a new high, both to blow out the bigger, bearish wedge and drive out a potential double top.
A significant close above the psychological level of around 25,000 would convince us that the market structure had reversed, and we would make that positive decision wholeheartedly.
Trading Strategies
Conservative traders would wait a long time for a penetration of at least 3% of the high from April 29 to above 25,500, followed by a return movement for the new support test the cartridge again. Alternatively, conservative traders can reach a short position with a slot below 22,130, using the same filter down, followed by a corrective rally to confirm the resistance in that scenario.
Moderate traders are likely to face a long position with only an upward movement of only 2% past the possible peak of April 29, above 25,250; they could go short with the same parameters below the May 14 low, below 22,345.
Aggressive traders could take a contrarian, short position, bet on morbid economic data, Powell's bleak forecast of a protracted recession (which took place before he came back to drive stock prices higher), and the long way for a bona fide vaccine would be released and distributed. There is still the potential of a double top and the finished rising wedge. However, these traders are the most disciplined. They never trade half-heartedly and are willing to lose some of their time.
Trade Example – Aggressive Long Position
Entry: 24,700
Stop-Loss: 25,000
Risk: 300 points
Target: 23,200
Reward: 1,500 points
Risk: reward ratio: 1: 5
