Topics of last Weekly Analyses, were among other things, single candle look and bearish or bullish divergences.
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This blog, which I am doing on every Sunday, instead of being outside with my family on a sunny day, is also a part of preparation for myself for the following week. Every Sunday you will find my thoughts about US and German market, from the point of view of a short-term trader. Day traders also need to know the big picture, not only to stare at a 1 min chart.
Next week, we will have following data releases and Earnings Reports:
So, just a few important news, 14 out of the 30 DAX components already reported Earnings, and this week, just Bayer and BASF - both LARGE in Index Weighting.
Let's start with SPX as usual:
Chart #1 - ES_F Daily
Several things to observe on this chart.
#1 - Bulls go up on a stairs, bears go down with the elevator. (Or jump out of the window.)
Prior 6 month rising channel, and majority of it negated in less than a month.
#2 - Current 4.5 month channel of relentlessly going higher, with only occasional spikes of volatility caused by coronavirus scare.
#3 - Bearish divergence on last two daily tops, clearly visible on MACD and RSI.
#4 - Bull/bear line on LTF charts is, IMO - still 3030. Note that ES_F would need to correct 11% just to reach that line. Shit can hit the fan BELOW THAT. We are talking about HUNDREDS of ES_F handles here, just to 3030, and opportunities on both sides, IF that happens.
RISK is to the downside. It was to the downside also a month ago - but market kept pushing higher, with bearish divergence and momentum slowing down. Do not guess the top, rather trade what is front of you. Big boyz are long only funds, they are making money only on markets going higher.
There is almost 32% of room JUST to the December 2018 low. Let that sink in. ATH on futures is 3397.50 and that low is at 2316.75.
Chart #2 - SPX Cash Index Daily
We had two down days, on last Thursday and Friday, with price poking below the first important support. 14 unfilled gaps, 13 below the Friday close, and 1 above.
What to note on this chart:
#1 - Support levels
#2 - Gaps
#3 - DMA50 and DMA200
#4 - Possible trapped buyers, a.k.a. Johnny-come-late above 3338
Bigger downside would be on market breakdown below DMA50 and HOLD BELOW for start, then we go step by step. Up or down. Keep an open mind. Next Support level of 3215 is key to more downside.
Question: what are leading stocks doing?
Open Daily charts of FAANG and Microsoft, place DMA50 on it (simple moving average 50).
Facebook looking like more downside could come.
Apple in consolidation with DMA50 near. Note that this stock is prone to large pullbacks, and I already made a Twitter thread on that, in the past.
Amazon IMO has a key level around 2040, with bears waiting below it.
Netflix has an upthrust above 385.
Google now very extended.
Microsoft could test DMA50.
It also seems that leadership on US markets is narrowing down. Would not buy any of this stocks now. After (possible) correction, yes. Now - no.
Where is the risk? That is what you should ask yourself. Not reading headlines, or listening to perma bulls OR perma bears. Since perma bulls will want to "load up the truck" every other day, and perma bears will miss every rally because of various reasons. What I think about all that bullshit, I already wrote in one of my RANTS. Still think the same. Stick to the charts, form your own opinion, be flexible and know when you are wrong. Having INVALIDATION POINT will help you.
IF you want to be profitable:
IF Buy-The-Dip strategy works, THEN you NEED to be buy-the-dipper.
When it doesn't work, and all points to the downside, you need to be a seller.
Movin' on to German market.
Chart #3 - DAX Cash Index Weekly
Triangle formations two years ago and now. These need time to resolve. Months. With price below previous ATH (below 13,600), risk is to the downside now.
Chart #4 - FDAX Daily
On this chart:
#1 - Look above and fail. Failure to hold above the daily chanell. Breakdown of newly developed ~13,600-800 range. New ATH made in premarket session - carry on that information, which COULD mean that upside auction is not finished. In general, markets doesn't like prominent highs or lows, made outside RTH session.
#2 - DMA50 around 13,400. You can see some really precize reactions on this chart, from this old school moving average.
#3 - Levels and Daily ATR
Going toward 13,400 would not be a surprise. That would be the target of previous 13,600-800 range breakdown, and also inline with DMA50 and support zones from lower time frames. Similar like with the big bro SPX:
For more downside, we need to see price breaking and holding below DMA50.
Every time market is at inflection point, threatening that it could make a correction (or even a bear market as a possibility), we - the traders - need to ADJUST to new market environment. Remember that in bullish environment, breakdowns tend to fail, and that spring (or false breakdown) below support is a usual bullish setup. In bearish environments, breakouts tend to fail. Rising volatility IF we get one - will bring bigger daily ranges and more opportunities per day, but that also means a riskier environment for less experienced traders. When VIX is pegged on $11 for months, your idea on ES_F is likely how to land a 4 point winner, using 2 point stop. Well, when market really start to go down, and VIX goes to $20, you can FORGET about that. Unless, of course, you like to be stopped every 5 minutes, even if you were right about direction. The real CANCER in day trading AND swing trading is IMO - by far - usage of artificially small stops.
When trading channels like the ones from first two charts breaks, downside is usually fast, until the next good support. Nothing goes up or down in straight line, so there will be opps in both direction, whatever comes next. ADJUST in case of rising volatility, be prepared and with the open mind.
In short term trading it is very important to properly understand context heading into every day, to know from which side wind is blowing - who has the short term control, and which side will be forced to liquidate IF and WHEN market hold above or below a certain level. What is the level of volatility, what can we expect from any particular day, what market already done in premarket session, what possible setups can be available, and so on... the things that we constantly learn in the DAILY DOSE OF DAX.