There seems to be an enigmatic contradiction between market stories and actual market campaigns. The headlines emphasized that the trade dispute is the greatest risk for equities, but small-cap stocks continued to perform better and mega-cap stocks lagged behind, even when the reports indicated that a fast trade resolution was imminent.
However, if higher rates cause investors to become nervous, the market structure has been upside down. The growth of multinationals has indeed been compromised because they depend on exports. However, domestic companies have largely saturated the American market.
We have speculated that the real story is related to the rebounding dollar, since small caps performed better amid both the ups and downs of trade negotiations.
It is an increase of 14.5% YTD, while lagging behind 11%, this is the poorly performing US average this year. The Russell 2000 trades in an H&S continuation pattern, the positive results of which are likely to be even higher as a result of the rising outbreak.
The golden cross this month – when the 50 DMA first exceeded the 200 DMA since causing a death cross during the December Roadmap – strengthens the outlook for a sustained uptrend.
Note: the rising pattern is only completed after a positive breakout, beyond 1,630 per current corner of the neckline, 5% higher than the current price. For now, while the found price supports the 50 DMA, it is trapped in a pennant formation, since bulls and bears are similar to each other, but the upper limit of the formation is monitored by the 200 DMA, opening a scenario for the fall earlier in the month to resume, with a downward breakthrough.
If that happens, it would also break the bottom of an ascending channel and possibly change the trading range since 25 February to a double top, if prices fall below the low of 25 March, reducing the chance of a fall-out. being disappointed with bulls.
Trade Strategies
Conservative traders must wait for a positive outbreak to complete the continuity pattern of the H & S. The neck is rising, forcing the price to go after it for a valid penetration. Cautious traders would use a filter of at least 3% and 3 days, preferably to have a weekend around, to avoid a bull trap. They then waited for a return movement to retest the integrity of the neck, with at least one single long green candle engulfing a red or small candle of both colors.
Moderate traders can defy a long position with a height above 200 DMA, plus any filter that matches their risk aversion, to reduce the chance of getting a sagged knee.
Aggressive traders can now go long, or wait for weakness to buy on the slope and closer to supporting the channel, count on the bottom of the rising channel to support prices back to the neckline.
Trade sample
Listing: 1,520
Stop-Loss: 1,490, under the March 25 low, the Head of the H & S.
Risk: 30 points
Target: 1,610, below the top of the rising channel / H&S neckline
Risk-Reward Ratio: 1: 3
