Chart pattern and CCI signal in total harmony in this US stock
An example of a weekly chart of a major US financial stock printing a head and shoulders price action in total harmony with a bearish signal from Commodity Channel Index. When multiple elements come together to give a consensus signal, traders have a high probability setup.
Major US stock with head and shoulders pattern, matching CCI signal
This is the weekly chart of a US financial stock. I love it when charts have multiple elements that come together to send a consistent signal. Few observations:
- Head and shoulders chart pattern signalling a potential bearish reversal pattern.
- The bearish reversal is not confirmed yet since neckline is not broken.
- From overnight action, we know neckline did come into play as a support.
- Month – month price is already falling since April.
- May is in the red till date.
- Q2 is in the red.
- Year till date 2017 in the red.
- Neckline support can also be described as a 5-month support.
- Bottom panel shows the CCI or Commodity Channel Index.
- There are three simple ways to read CCI
- Above CCI zero-line signals uptrend; below CCI zero-line signals downtrend.
- CCI above 200 signals ‘overbought’; CCI below -200 signals ‘oversold’
- Divergence, chart patterns can be read from CCI.
- When the stock in this illustration was printing a new high at the ‘head’, CCI was shouting bearish divergence.
- Before the right shoulder was printed, CCI already crossed the zero-line indicating a down trend.
- This signals that the right shoulder was merely a retracement.
- When the right shoulder was retracing, CCI also retraced to the zero-line from below.
- When the right shoulder was printed after price got rejected by resistance coinciding with left shoulder high, CCI also got rejected by the zero-line.
In this setup, the right shoulder resistance was a high probability short.
These are some other examples of high probability patterns when multiple elements come together.
- Natural Gas has a good setup with multiple elements in place
- AUDUSD has a very good setup with multiple elements in place
- 5 price features that set up a good reversal trade