vlad.adrian

US Stock Market - caution ahead!

Short
CBOT_MINI:YM1!   E-mini Dow Jones ($5) Futures
A new high for the the Dow - 30000, followed by a rejection. Let's zoom out and see what we can find out.

From a technical perspective, we have reached the previous all time high, and on the way, some possible bearish patterns have emerged. I say possible, because the impulse system is still green, which means that momentum is still to the upside. However, a look at the daily chart shows us a triple top pattern, which calls for lower prices. If the triple top materializes, the impulse system will at least turn blue, if not red. So, although I am trying to anticipate the market a bit too much, I think there is a big chance for these bearish patterns to actually be confirmed.
First of all, we have a beautiful divergence on the MACD histogram, after the market reached a new high on a small swing, at a previous all time high and the 30000 mark. Secondly, the Force Index has drawn a small bearish divergence too. Third of all, look at how these breakouts happened; there's a false breakout over a previous small swing high(August), over an important swing high that is also the all time high(February) and the 30000 points mark, which is an extremely important psychological level. This is a classic bearish pattern , that calls for lower prices. And now, the important question, a small or a large correction?

What we have to understand is that technical analysis does not tell us the future path of a stock, commodity, market, you get the idea. This is either a great misunderstanding, or an outright manipulation from the 'technical analysis gurus' (people that will try and sell you something: books, software, signals, that are based on technical analysis ). What technical analysis actually does is provide you with some insight regarding market dynamics, it can help you define some good entry points, or define risk. What it will never ever do is predict the distant future, that is just some ridiculous mumbo jumbo , tossed around either by fools, or scammers. If you find a double bottom pattern, a flag consolidation, a divergence, you can surely make a bet for the immediate future, however, a divergence or any other pattern is not going to change a trend in any asset. Sure, you are going to see that a bull/ bearish market has ended with a technical pattern, but for each of these successful patterns, you can find 5 more that didn't work at all and 10 that signaled only retracements in the bigger trend.

I circled two previous patterns, the deeper correction at the end of 2018, which started with a double top at a previous all time high, a beautiful bearish divergence with false breakout. Then, in the middle of the chart, when the market returned to the highs, you see a painful grind higher; every time the market reached a previous swing high, it would break out, form a bearish divergence, correct, and then go continue higher. All corrections, small or large, were signaled by technical analysis .

So let's sum up - if the impulse system will show that upside momentum has stalled, we are going to have bearish patterns sometime in the next weeks. Is it going to be a top, and a bearish market is coming? Is it going to be just a small correction like the ones in mid 2019? Or maybe a bigger correction like the one we had at the end of 2018? I don't know, no one does, real technical analysis does not give you a probability regarding which of these scenarios are likely to happen.

However, what we do know is that the US stock market is going to have a bearish chart and it is extremely likely that at least a correction is coming, so what I am going to do, is be very cautious. I would not want to be very exposed with such a chart in play! If I would have to choose, considering all the liquidity these days, I would bet it will only be a small or medium correction. Luckily, I don't have to! I can just wait, and look for a buying signal.

Comments

Thanks for the great analysis. Keep up the good work
Reply
Home Stock Screener Forex Screener Crypto Screener Economic Calendar How It Works Chart Features Pricing Refer a friend House Rules Help Center Website & Broker Solutions Widgets Charting Solutions Lightweight Charting Library Blog & News Twitter
Profile Profile Settings Account and Billing Referred friends Coins My Support Tickets Help Center Ideas Published Followers Following Private Messages Chat Sign Out