SiMSCI the 6th element; there IS a change in the market
Chinese New Year is coming so there will be a 1-2 week period where a significant segment of traders go away. Low volume environment could lead to melt-up or melt-down easily (see green zone). Moving average suggest 13-week ema could become potential resistance. Could see pinball action as market fights.
This was published 2 days ago ‘5 technical features in this SiMSCI chart‘. Today I do an update with the addition of a 6th element.
5 features in this chart define SiMSCI trend and risk-reward proposition for traders: 1) rising equidistant channel since late-2016 2) steep trend line from September 2017 3) February high 4) major 2015-top at 399 and lastly 5) rising month-month price action.
Not so unthinkable 6th element
Based on current price action these are new observations.
- That long tail left at the bottom of yesterday’s trading confirms our observation of the up trending equidistant channel.
- We don’t have a bearish expansion on the month yet so month-month uptrend of rising highs and lows remain intact.
- At the lowest point however, SiMSCI was so negative it canceled previous 13-weeks of gains in 2 weeks. This is a huge bearish expansion on the week level. With this kind of price action, there is high probability that there would be another leg down. Next Friday is Chinese New Year. For the next one to two weeks, a segment of investors and traders will go away so there will be less liquidity left in the market. In this kind of environment, it is very easy for a low volume melt-up or melt-down to be determined by the money gods.
- Which comes to my 6th element I want to bring up today – the green zone on top. In my opinion, the market is in a runaway bubble mode. True or not I don’t know. If this is truly a bubble however, something super amazing will happen – SiMSCI will rally back up by nobody business and it will go back to/near that all-time high at the green zone. (Many bulls who were stopped out this and last week would have suffered for nothing while bears who short equally get killed.) If it is not a bubble, a more rational market will surely give that major top at 399 a good test and probably fail.
Which moving average will now provide support?
A look at SiMSCI exclusively using a 4-line weekly exponential moving average roadmap offers a slightly different point of view. To get acquainted with this roadmap, go to this post.
Focus on the red 13-week ema and blue 26-week ema. 13-week ema is the shorter duration moving average. A really bullish market will keep bouncing off this line. The 26-week ema looks at deeper retracements and should offer a stronger support. For blue to come into the picture means red failed to arrest price correction – which is what happened recently.
Combined together the entire roadmap says that SiMSCI is still in an uptrend mode. It will take quite a lot of price correction (and gyrations) to move the whole roadmap into a reversal pattern that truly signals a downtrend. You can see that scenario here in my post on DXY.
What this weekly exponential moving average roadmap suggests are:
- For SiMSCI to go past red to hit blue means it is no longer so bouncy as previously. It is weaker, market is no longer keen to buy dips without a steeper retracement (think deeper discount as incentive for risk-taking).
- If the market is following this roadmap exclusively (ignore the channels and horizontal line discussion above), then the red 13-week ema is now a potential resistance. There will be a pinball action of price bouncing between blue and red as buyers and sellers fight for control. If bulls win, SiMSCI goes above red. If bears win, look for SiMSCI to fall even deeper to eventually test the 52-week and 104-week emas. In conjunction, 13-week and 26-week emas will start falling, possibly do a dead cross sometime in future.