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:
- DAX is resisted by 4-month resistance which is also highest traded year-to-date.
- From that 4-month resistance, it just printed it’s worst end-of-day close since 3 weeks.
- 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.
- Closer inspection shows week – week price action moving lower with lower highs, lower lows.
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.
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.
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.
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.