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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:

  1. Head and shoulders chart pattern signalling a potential bearish reversal pattern.
  2. The bearish reversal is not confirmed yet since neckline is not broken.
  3. From overnight action, we know neckline did come into play as a support.
  4. Month – month price is already falling since April.
  5. May is in the red till date.
  6. Q2 is in the red.
  7. Year till date 2017 in the red.
  8. Neckline support can also be described as a 5-month support.
  9. Bottom panel shows the CCI or Commodity Channel Index.
  10. There are three simple ways to read CCI
    1. Above CCI zero-line signals uptrend; below CCI zero-line signals downtrend.
    2. CCI above 200 signals ‘overbought’; CCI below -200 signals ‘oversold’
    3. Divergence, chart patterns can be read from CCI.
  11. When the stock in this illustration was printing a new high at the ‘head’, CCI was shouting bearish divergence.
  12. Before the right shoulder was printed, CCI already crossed the zero-line indicating a down trend.
  13. This signals that the right shoulder was merely a retracement.
  14. When the right shoulder was retracing, CCI also retraced to the zero-line from below.
  15. 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.
High probability confluence between price action and CCI indicator in this weekly chart of a US stock

High probability confluence between price action and CCI indicator in this weekly chart of a US stock


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.

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