So jumping straight into the first analysis post for the year: In the last T40 note for 2015 ,in the week leading up to Xmas, I made the point that the weekly charts needed to be bullish to initiate some positive divergence. This can now be seen playing out on a weekly basis with the stochastic also moving upwards off oversold levels. The RSI remains fairly neutral at the moment though. Also worth noting is the weekly resistance at the 61.8% fibonacci retracement level based off the last major high and low.
On the daily chart, the overbought stochastic has crossed down over its signal line pointing to a potential bearish short-term outlook. Interestingly enough, in this time-frame, we can see potential negative divergence playing out with further downside possible.
Moving this to the daily support and resistance chart, we can see closing prices starting to throwback to the 45,300 major support zone after a strong rally for most of the latter part of December. With overhead resistance coming in at 47,000 this creates an intraday tradeable zone between the 45,300 and 47,000 as capped target levels.
On balance it looks like we could see a slow start to the new year with some consolidation being the order of the day with a move back towards the 45,300 area. Any short setups will be capped at that level unless we see support breaking though. Long setups can be allowed to run as far as the 47,000 level.
A very bearish start to proceedings has seen the painting of an ugly, red candle as the stochastic moved sharply downwards with the negative divergence starting to play out. This move has also seen a daily close well below the 45,300 level which barely provided any support on the way down. With plenty of room left before oversold conditions become a factor, a balance of triggered negative divergence still being played out and the next major rising support level coming in around the 42,500 level, unless the T40 can find its feet around the swing lows at 44,000 and then 43,400-43,500, downside risk to 42,500 remains on the cards. Our intraday trading strategy will be to ride shorts as far down as possible towards that 42,500 level while capping any long trades at the 45,300 level which we now regard as resistance.
ReplyDeleteThe T40 managed to regain some minimal lost ground with a small bounce on an end of day basis on the back of some support being found around the 61.8% fibonacci retracement level on the high-low move from 14 - 28 December. The daily stochastic however remains pointed firmly downwards. No change to proposed intraday trading strategy is proposed.
ReplyDeleteAnd the weakness continues to play out with another down day. The daily negative divergence appears to have played out to a large extent with the stochastic moving into oversold territory but it remains pointing firmly downwards with potential minor support levels at the previous swing lows as highlighted in yesterday's comment which may slow the downward momentum as we head into the end of the week.
ReplyDeleteHowever, we now also have the makings of a huge head and shoulders pattern should price break a 43,400 neckline and if that plays out we will very likely see downside towards the major support level at 42,500 with a technical downside target coming in around the 38,000 level!
But, in terms of taking this day by day our intraday strategy remains intact at this point within the 42,500 and 45,300 capped range.
Another very weak day has seen price moving down and on an intraday basis touch the previous swing low level as painted in mid-December. The stochastic remains oversold and pointing downwards. Price did end around 450 points off its low water mark which, if the stochastic can start to climb in the next day could see some positive divergence starting to come into play with a much needed bounce.
ReplyDeleteWhat is worrisome is that on an end of day basis the neckline of the head and shoulders pattern mentioned in yesterday's comment looks to be potentially breaking so unless the market can put in a decent counter-trend bounce here we could see weakness down to 42,500 and beyond.
Tactically we're still in the same trading zone we've been in all week but if we start trading below 43,400 tomorrow, we'll put a price ceiling in at that level for any long trades while letting shorts run down towards 42,500 with an eye on further downside.