Assorted chart observations of the day

I share my observations of DAX30, EEM, Nasdaq 100. Considering how stock indices have been exceptionally risk-averse, exuberant, buoyant, I consider all these setups here as high risk.

 

DAX30 don’t look too bullish

I decided to write ‘don’t look too bullish’ rather than to simply write ‘bearish’ because stock indices look like they got invisible hand supporting them – good news rally, bad news rally, no news also rally. Exceptionally true with US indices.

With the DAX30 (this is a CFD contract on MT4), these are some ‘don’t look too bullish’ observations:

  1. DAX is resisted by 4-month resistance which is also highest traded year-to-date.
  2. From that 4-month resistance, it just printed it’s worst end-of-day close since 3 weeks.
  3. November low was a big bearish expansion thanks to the US Presidential Election. What this means is that previous month – month uptrend since July is over.
  4. Closer inspection shows week – week price action moving lower with lower highs, lower lows.
DAX30 daily chart end October 2015 - present

DAX30 daily chart end October 2015 – present

I wrote this a couple of days ago but I put it down here again. This refers to DAX30 here, CAC40 and of course the Straits Times Index. Replace Straits Times Index with DAX30, CAC 40 – same same.

If this is the best the Straits Times Index can do while other indices are printing new 52-week highs, what will happen to the STI if those indices start correcting?

 

EEM correction 3-weeks ago high volume

I just realised that EEM’s correction 3-weeks ago was on the back of high volume. I am sure there is an implication here.

IShares MSCI Emerging Markets ETF weekly chart 2010 - present

IShares MSCI Emerging Markets ETF weekly chart 2010 – present | Source: Tradingview.com

Note: Asian stock indices have strong positive correlation to EEM which means that if EEM falls, many Asian indices would be following as well. Considering there are 23 countries, 837 stocks in the Emerging Market Index, I think that this is a must-follow indicator. Secondly market fall on high volume is bad. Price to volume relationship is explained in this article ‘High Volume Exposed: Four Killer Scenarios Stock Traders Should Care About‘.

 

So is NASDAQ going to do that ‘Head and Shoulders’ or not?

There is a chance but if I could tell with 100% certainty I would go all in. I am going to see whether the index crosses below the left shoulder or not. If it does, there is a good chance. If it does not then of course there is no way the head and shoulders will happen.

NASDAQ 100 (CFD) weekly chart from March 2016 - present

NASDAQ 100 (CFD) weekly chart from March 2016 – present

If Nasdaq does go below that left shoulder, there are 2 ETFs to look at: QQQ and XLK. QQQ chart looks a lot like NAS100 chart here but XLK is different. XLK actually printed a new 52-week high. However the same guide applies -> look at left shoulder. If XLK falls below, that 52-week high will be remembered as a bull trap.

XLK weekly chart

XLK weekly chart

It is important to note: traders cannot be very long-lived if they make a habit of shorting [whatever] 52-week high. On the other hand, there is some attraction because depending on the justification/outcome, shorting 52-week high can deliver low-risk-high-reward trade with a tight stop loss. Apply sparingly and look out for adverse reaction if any.

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Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005.   Soh's Twitter account @sohtionghum was ranked #23 out of The Top 70 Twitter Accounts To Follow In 2015 by MahiFX.   Disclaimer notice: "I do not have a financial advisor's license. I am not qualified by any regulator to give financial advice. I do not know you the reader. Your investment means and motive may be different from me. My posts here are based on observations and meant for education. I am not responsible for for any consequence from your actions."
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