Chart Of The Day: Dow Risk-On Rally Premature As Selloff Looks Likely
Pinchas Cohen | Sep 05, 2019 00:07
This morning, Dow futures began rising, on the perceived easing of global tensions. With the U.S.-China tariff war seemingly at a standoff, the mother-of-all geopolitical risks continues to loom large. For savvy traders, this could be a key opportunity for a short set-up.
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Global risk appetite has been accelerating, thanks to the easing of multiple geopolitical situations, including China’s backing off its Hong Kong extradition bill; Italy’s growing political stability and UK politicians seeming to back away from a no-deal Brexit.
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However, markets could simply be Moody's . In their view, the most likely scenario for the U.S.-Sino trade war, one of the two biggest headwinds to stocks in over a year (U.S. interest rates being the other), is that it will escalate further.
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While the roiling tariff tiff has consistently flummoxed exasperated traders trying to establish which way equities will head next, there have been signs that overall, the market doesn’t expect a speedy resolution to the trade situation. Technical charts are clearly projecting that right now.
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Despite today’s surge, the YM found resistance below the 26,400 level, the top of a congestion since early August. The range is considered an interruption within a short-term downtrend, during which short sellers take profit after an 8% drop in just five days, which occurred between July 31 and Aug. 5.
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The upward bias, albeit with a flat top, may suggest that vociferous buying is gradually being absorbed by resolute supply. A downside breakout would demonstrate that supply has drowned out all demand at these levels and is willing to lower offers to find new, willing buyers. That's a sign of desperation.
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The fact that the presumed continuation pattern is developing as the price attempts to climb back above its uptrend line since the December bottom is a projection of the conflict between bulls and bears amid the macro outlook for stocks with the trade conflict in the background.
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The failure to climb back above the uptrend demonstrates weakness. A downside breakout would signal another leg down and the potential for a medium-term reversal.
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This is clearly seen when considering that the range is potentially developing another, larger patter, a H&S top, whose left shoulder developed in April. A completion of the continuation pattern would also bring the price below the 200 DMA.
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Trading Strategies
Conservative traders should wait for the H&S completion.
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Moderate traders would wait for the continuation pattern completion.
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Aggressive traders might risk a short position now, relying on the resistance of the continuation pattern-top
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Trade Sample – Short Position
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