We have been bearish on US equities for some time now, based on fundamentals, macroeconomics and geopolitics. Since the fall in December, with which a downward trend has been observed in the medium term, technicians have also been sending out dissuasive signals. But this is possibly changing, although it is unlikely that it is all free sailing.
The technical picture is complex. Since the December collapse, the two rising peaks and troughs with the peak in July have recorded a medium-term upturn that would tie in with the long-term upturn since the bottom of 2009.
has fallen twice below the upward line since the bottom of December, although it remains below the upside in the medium term. However, yesterday it completed a symmetrical triangle with an upward breakthrough.
A symmetrical triangle shows a balance, since equal determination of buyers and sellers determines the price between the two parties. Therefore, when the balance between supply and demand breaks the top of the pattern, it appears that all offers are included and sellers increase their bids, out of reach, to find new willing sellers – along with a short squeeze and triggered longs – presumably driving higher prices
Not only did the price complete a continuation pattern to the top, but the price created an escape gap to start. When a price breaks out of a range by jumping & # 39; in the air & # 39 ;, it not only symbolizes market mood, but shows that all investors are on the same side and are buying.
The RSI indicates that the momentum is behind the movement because it intersected the top of its own symmetrical triangle. The 50 DMA reached the peak of the 100 DMA and went higher; the 200 DMA scaled above the bottom of the triangle – all of which suggests that a wide range of prices is rising at a crucial level for the balance between supply and demand.
Still, the price remains below the broken medium-term uptrend line since the Christmas sale, as well as the top of a broadening pattern (thick black line) since January 2018.
How do analysts navigate through so many, often conflicting, technical variables? They try to measure the weight of the balance. Moreover, it is crucial to find the pressure point, the line in the sand between buyers and sellers, the level above which we must assume that the scales are tilted.
We consider that intersection on the X where the huge widening pattern – usually formed at market tops, indicating a lack of direction, a fertile bottom for a bear market – meets the broken medium-term downward line since the worst Christmas Eve ever sold out.
If the price exceeds the 3,100 level, we assume that any offer has been absorbed or converted into bulls and another leg would follow higher. On the other hand, if the price finds significant resistance at this level, it would be the merit of another leg down to the bottom of the widening pattern, after its previous low at 2.351.
How does this view mix with an upward breakthrough of a symmetrical triangle, which is a continuation pattern, with a rising, breaking gap, no less? Well, there are pattern errors that, like an overloaded spring, act like a slingshot in the opposite direction. Note that the triangle penetration was only 0.7% and produced a small candle. The escaped gap and record height ripen the field for an island reversal or at least an evening star, the bigger they are, the harder they fall.
Trade Strategies
Conservative traders must use a 3% filter to avoid a bull trap. This penetration should erase the widening pattern. Then they have to wait for a return to prove the integrity of the uptrend.
Moderate traders can go long after a 2% filter and then wait for a withdrawal for better entry, but not necessarily for proof of demand.
Aggressive traders risk a long position after a penetration of 1%.
Trade sample
Entry: 3.025 – with a reset, after first closing above 3.050
Stop loss: 3,000
Risk: 25 points
Target: 3,100
Reward: 75 points
Risk: reward ratio: 1: 3
