After his amazing double-digit progress since June, it shows signs of a possible correction. There is also a rare pattern – a broadening pattern – that, if completed, would herald a bear market.
The index fell by 0.65% yesterday, the second day with losses, with a total decline over the two sessions of just under 1.00%. Industrials (-2.14%) performed worse than CSX on the rail market (NASDAQ 🙂 10% plummeted in a downward trend after soft guidance for sale. Although the SPX was hit by industrial companies, the acid mood was more widespread than that, with all but negative utilities (+ 0.38%) and healthcare (+ 0.02%) in negative territory.
CSX had previously achieved excellent results by jumping almost 30% YTD and outperforming the 21% gain of the Index. The current slump and weak guidance are the direct result of falling demand amid the ongoing US-Chinese trade war, and the sector is feeling it difficult.
Will the falling demand for goods continue? Based on the graphs, it is possible to map out a route that indicates which price levels should be observed.
SPX Daily Chart
The SPX has completed an evening star – a bearish pattern with three top candlesticks – and Wednesday's sale has erased the short-term trend since June 3, increasing the chance of a brief reversal and completing a falling series of peaks and troughing troughs .
The MACD caused a sell signal when the short MA fell below the long MA because current prices weaken relative to the average of the longer period.
The RSI has completed a double top that falls below the July lows and may continue to form a triple top that falls below the June lows, which may indicate that prices may follow.
Although all these bearish triggers paint a bleak picture in the short term, they increase the chance of a correction in the long term as a larger pattern emerges.
When you return to look at the bigger picture, a rare broadening pattern emerges. The placement of the evening star is demonstrably more important than the pattern itself. Its development exactly below the upper limit of the widening formation exponentially exponentially its bearish value, because its proximity lends credibility to the importance of increasing supply.
The characteristics of the expansion pattern are rising peaks and falling troughs, a contradiction in the market structure. If investors believe in long-term growth, they must support prices, push to higher lows, to guide the higher highs, and thus form a coherent long-term uptrend. On the other hand, if investors expected corporate profits to decline, they would have to sell at the rally, forcing lower peaks and lower lows
.
This paradoxical price structure projects a serious lack of market leadership when participants cannot adhere to a consistent strategy. Therefore, this is considered a very bearish pattern that develops at the top of the market but is not completed until the lower limit is exceeded.
Warning: trend lines are tricky things and it takes considerable experience to have an eye for this over-commercial but illusory skill. Since the boundaries of the broadening pattern change along with trend lines that deviate from each other, it is a challenge to determine when the pattern is complete. Even then, it needs experience to know how to act afterwards. However, we will try to follow developments closely and do our best to guide you.
Also note that the weekly RSI has yielded a consistent set of negative deviations, with each RSI peak falling lower, in contradiction with rising price peaks. The recent RSI peak – well below that of the start of the broadening pattern, despite achieving a record high – can give us a head start on a price correction, if the RSI is below the lowest price in June, ahead of the price.
Trade Strategies
Conservative traders would wait for the pattern to be completed, with a decisive reverse side of the broadening pattern, which is far away, at the 2,000 level for short-circuiting, or for the pattern for beating, with prices over the 3,100 level (at the current angle) go too long.
Moderate traders can develop a falling series of peaks and troughs shortly after the short-term trend
Aggressive traders can now make a shortage, counting on the development of the evening star just below the widening summit, as well as the bearish indicators.
Note: if a trader now has shorts, he must be prepared for the price to test the resistance again and whether he accepts being stopped or committing himself to a generous stop-loss, thereby increasing the potential loss . If he chooses to wait for an upward movement, he risks losing the position. That is why it is crucial to develop a trade plan that fits the account that the trader is committed to.
Trade samples
Immediately
Listing: 2,985
Stop-Loss: 3.020 – above peak
Risk: 35 points
Target: 2,880
Reward: 105 points
Risk-Reward Ratio: 1: 3
Upon upward movement
Listing: 3,000
Stop-Loss: 3.020 – above peak
Risk: 20 points
Target: 2,940
Reward; 60 points
Risk-Reward Ratio: 1: 3
