It is no secret that since the bottom of March we have been uncomfortable with the current stock rally. In April, US stocks went on a short-term upward trend, as shown in the following chart.
Nevertheless, the global pandemic that occurred once in the century and its existence, including the fastest bear market ever and the worst recession since the Great Depression, still frightened us. In addition, the long-term trend for stocks was sideways, as can be seen in the following monthly chart.
Not only has trading been sideways, but the lower lows and higher highs have developed an increasingly broader pattern since January 2018. This means that this reach-related activity has been going on for three years, a structure that usually takes several months.
The dynamics of this type of trade offering is a loss of leadership and possibly the start of an important step to follow. In classical technical analysis it is said to be a top.
However, the one that evolved from 2000 fell out in 2014. Again, the dynamics that dominate a pattern that is believed to be a top – in a downward breakout – is meant to last for months (or at least that's for as far as we know has been the case).
But in an alternative economy, such as the one created by the Fed's quantitative easing, savers are punished because interest rates, including bond yields, remain low, tempting investors to borrow at ultra-low rates and put themselves completely into stocks. , which holds the promise of higher yields and infinite winnings … just like infinite QE itself.
So, while we still feel very uncomfortable with this rally, we must acknowledge the following reality: After a prolonged upward trend started last week, the mega-cap Dow Jones Industrial Average is likely to follow suit. We also bet President Donald Trump will pull out all the stops to support the stock rally ahead of his reelection bid.
Already speeding up plasma recovery as an emergency treatment for COVID-19, he threatened drug manufacturers with an ultimatum to cut prices. Also about the ban on American companies doing business with WeChat in Chinese hands.
As such, while we continue to nurture reserves, we will recognize the potential bullish pattern shown in the Dow & # 39; s daily chart above.
The 30 Component Index May Have Completed a Falling Flag – a period when the early bulls are making money after a rapid 8% rise, while bullish newbies are picking up where the older ones left off to continue what they think is a repetition movement. The positive breakout shows that the new buyers were stocking up on all the available supply of the first-legged bulls and were forced to increase their offers to find new, willing sellers at higher prices.
The breakout can force a short squeeze and trigger longs, driving prices even higher. The expectation is that the newer bulls will want to earn as much as the previous bulls and will therefore carry the same distance with prices. Note that the flag is supported by the June 8 high, adding to the bullish dynamics. , or even for a new high, before risking a long position under such strong technical forces.
Moderate traders could risk a long position after a close above the flag's highest point of 28,155.
Aggressive traders can buy into a position at will after writing a trading plan that suits their budget, timing and temperament.
Trade Sample
Import: 28,000
Stop Loss: 27,800
Risk: 200 points
Target: 30,000
Reward: 2,000 points
Risk: Reward Ratio: 1:10
Note: This is an example only. The article carries the message. If you haven't read and understood it, don't act. Also, the monster does not and does not suit everyone. Tailor a trading plan to your personal needs, based on your account, timing and risk aversion. If you don't know how to do that, don't trade unless you're willing to lose the money as an educational exercise.
