Originally published by guppytraders.com
We start with a basic analysis of the first graph. On the first graph a clear support level is shown as line A. The trend line B breakthrough is defined more clearly. Bullish traders look at this graph and project the upward target near line C. The probability of a break under support level A is very low.
Think of this analysis and conclusion
The second graph is the. It has experienced serious resistance in the vicinity of 2810. On the daily chart, this resistance appears to be a threefold top pattern. It is technically not a triple peak because the S & P peak is close to 2940. However, this consistent test a withdrawal from 2810 makes this a significant resistance level that has been tested three times since October 2018.
The current reaction away from this resistance level is also a pause under the trend line that defined the upward trend that started from the spillway in December 2018.
The trend line defining the trend does not start from December 2018. The trend line starts from January 2019 because this line most accurately captures the next S & P trend development with four anchor points in the trend line. The break below the line is significant, so it must be treated as a downward trend break.
The target support level for the retreat is around 2630. This is not a well-defined support level. The index has been clustered several times around this level, but has historically not provided a good support function. This suggests some vulnerability in the S & P. ​​It is good for short-side traders because it suggests that this could be a minimum goal. It is not good for traders on the long side, because entering a long-term transaction after a rebound of nearly 2630 has a lower chance of success because the support level is weak.
Traders have traded the S & P rebound as a rally from December 2018 and then as a fast uptrend in recent weeks. Now traders have to switch to the potential for rally and retreat trading within a weakly defined trading band between 2630 and 2810. Traders will wait for proven rebound from 2630 support before they enter long-side positions.
It is difficult to recognize weakness in such a strong and fast upward trend. However, graph 1 is simply a reversed S & P 500 graph. The rules for using reverse diagrams are simple. If the bullish analysis of the inverted graph, then it must be a bearish analysis on the displayed map. Using a reverse graph is a good way to verify your analysis and reduce any unconscious bias.
Daryl Guppy is a leading expert in the field of international financial technical analysis and special consultant for Axicorp. Guppy regularly appears on CNBC Asia and is known as "The Chart Man". Disclaimer: Daryl Guppy is not a financial advisor. These comments are for educational purposes only and provide an example of applied technical analysis.
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