Stock Markets at Critical Support, No Real Fear in the Markets!
We have continued to sell off on Friday, and things were looking like price was going to confirm a lower high on the daily chart. Remember, in order to confirm a lower high swing in a new downtrend, we NEED a lower low close.
Take a look at the Dow chart. We have been watching this support at 27500 for weeks now. So far we have held it. BUT take a look at the pattern we are forming. Yes, our favourite reversal pattern, the head and shoulders pattern.
What is the trigger? A daily close below support. Look at what happens if you try to front run that. You get faked out and trapped. Wall Street knows tons of new money is trading these markets. This is why for our market structure approach, we must be patient. Sure, we may miss some of the move, but a confirmation increases our probability of a successful trade. If we miss an initial surge, we always wait for the next swing, as uptrends and downtrends move in waves, not directly in a straight line.
Next week will be crucial for this break, or bounce. Be care for another fake out where price moves deep below, but then reverses to close above. In fact...
I would say we saw this on the S&P 500. It seems we may open red, but let us wait to see how the Monday daily candle closes. If we close below, we have a confirmed lower high, but I prefer the Dow because we have a pattern (the head and shoulders).
The Nasdaq daily candle closed below the candle bodies of the previous candles, but remained above support. Both candle closes on the Nasdaq and the S&P were pretty much a tease. With break downs, we do like to see a stronger close meaning we have a large candle break and close.
As my follower know, in previous posts, I give reasons on why markets will be moving up: a hunt for yield as there is nowhere to go in this world. You can read my other blog posts regarding that.
Also, my followers know that I like to follow money flows, in regards to risk off and risk on.
The 10 year yield is stable, and in fact continued slightly higher on the 4 hour chart. This means that money is leaving the bond market...usually it will stay in cash, or go into stocks. If we had fear in the markets, we would expect the 10 year yield to move down indicating money moving into stocks.
The Dollar is probably the best chart in regards to expecting a market sell off. The Dollar being a safe haven currency, and we see that price is bottoming, indicating some sort of fear event upcoming...possibly during elections? My readers also know my theory on the Dollar AND markets moving higher together: foreign money buying US dollars in order to buy US stocks. It is possible.
I do think there could be a surprise upwards move in the Dollar, but we will have to see how equities react to confirm my foreign money theory.
The Volatility Index (VIX) did close lower for the day...not indicating any fear. Although some would argue it is basing, or getting ready to make a higher low.
And finally Gold. The precious metal that generally gains on fear has not moved. Even with the Fed talking about aiming for an inflation of 2% and higher. Once again, in my short idea, I have said I believe all the inflation is already priced into Gold on this last move higher. I can see a pullback, which may also coincide with the breakout on the US Dollar, before negative interest rates talks gets money back into Gold.
So a very big week for the markets. The key will be those daily candle closes below the support levels drawn out and mentioned on the equity charts. We hope to see a very nice close below support, rather than an ambiguous close. Watch these fear assets too, particularly the debt market.
Take a look at the Dow chart. We have been watching this support at 27500 for weeks now. So far we have held it. BUT take a look at the pattern we are forming. Yes, our favourite reversal pattern, the head and shoulders pattern.
What is the trigger? A daily close below support. Look at what happens if you try to front run that. You get faked out and trapped. Wall Street knows tons of new money is trading these markets. This is why for our market structure approach, we must be patient. Sure, we may miss some of the move, but a confirmation increases our probability of a successful trade. If we miss an initial surge, we always wait for the next swing, as uptrends and downtrends move in waves, not directly in a straight line.
Next week will be crucial for this break, or bounce. Be care for another fake out where price moves deep below, but then reverses to close above. In fact...
I would say we saw this on the S&P 500. It seems we may open red, but let us wait to see how the Monday daily candle closes. If we close below, we have a confirmed lower high, but I prefer the Dow because we have a pattern (the head and shoulders).
The Nasdaq daily candle closed below the candle bodies of the previous candles, but remained above support. Both candle closes on the Nasdaq and the S&P were pretty much a tease. With break downs, we do like to see a stronger close meaning we have a large candle break and close.
As my follower know, in previous posts, I give reasons on why markets will be moving up: a hunt for yield as there is nowhere to go in this world. You can read my other blog posts regarding that.
Also, my followers know that I like to follow money flows, in regards to risk off and risk on.
The 10 year yield is stable, and in fact continued slightly higher on the 4 hour chart. This means that money is leaving the bond market...usually it will stay in cash, or go into stocks. If we had fear in the markets, we would expect the 10 year yield to move down indicating money moving into stocks.
The Dollar is probably the best chart in regards to expecting a market sell off. The Dollar being a safe haven currency, and we see that price is bottoming, indicating some sort of fear event upcoming...possibly during elections? My readers also know my theory on the Dollar AND markets moving higher together: foreign money buying US dollars in order to buy US stocks. It is possible.
I do think there could be a surprise upwards move in the Dollar, but we will have to see how equities react to confirm my foreign money theory.
The Volatility Index (VIX) did close lower for the day...not indicating any fear. Although some would argue it is basing, or getting ready to make a higher low.
And finally Gold. The precious metal that generally gains on fear has not moved. Even with the Fed talking about aiming for an inflation of 2% and higher. Once again, in my short idea, I have said I believe all the inflation is already priced into Gold on this last move higher. I can see a pullback, which may also coincide with the breakout on the US Dollar, before negative interest rates talks gets money back into Gold.
So a very big week for the markets. The key will be those daily candle closes below the support levels drawn out and mentioned on the equity charts. We hope to see a very nice close below support, rather than an ambiguous close. Watch these fear assets too, particularly the debt market.
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