Looking at the weekly chart at the moment, we can see how it reversed off that 61.8% fibonacci level we highlighted and then did a retraced all the way back to the previous swing low closing just north of that level. The stochastic is looking weak and could form a failed stochastic reversal if it crosses back down below its signal line opening the potential for further downside. The RSI is not oversold and is pointing bearishly downwards. While the potential for a double bottom remains in place and the 21 week EMA remains above the 89 week EMA, on balance the longer-term trend is starting to shift negatively which would suggest that the 42,737 low posted last week needs to be respected or the probability of further downside over the next few weeks has greatly increased.
On the daily chart, we can see that the negative divergence discussed last week has played out pushing the stochastic oversold. The stochastic is starting to flatten but is still pointing down bearishly. There's also not much in the daily candles to suggest a reversal is on the cards as yet although for the first time since 29 December, the daily candles managed to form a higher low. The importance of continuing to respect the low level mark formed on Thursday is illustrated in this time-frame as well.
The daily support and resistance chart highlights a number of points of interest. First we can see the rising support level (blue line) highlighted last week. The market low of 42,737 noted above actually saw this level being approached on an intraday basis. What we can also see is a potential head and shoulders pattern being formed with the neckline around the 43,400 now being violated. If this plays out to its full potential, the 38,000 level - as improbable as it sounds - may be on the cards....
Also worth cross-referencing to this week is the daily 3LB breakdown which triggered on the T40 during the course of the week as posted here. While the detailed setup can be read in the linked post, its worth noting the downside target of 39,204 which reflects confluence of potential strategy outcomes being in play here.
Putting all of this together as a framework for the start of the week ahead, we will maintain out negative bias with the following caveats. Downside targets will be limited to the 42,500 level until such time as this level is broken. If/when this happens we will let out short positions run. Long targets will be capped at the 43,400 neckline level unless this level regains its support level status
A relatively long-wick on a positive candle saw the daily stochastic close above its signal line in oversold territory as the T40 managed to rally and close just above the 43,400 support level. That support level now appears critical on a close in order to avoid this move just being a throwback to the head ans shoulders neckline in anticipation of further market weakness. A higher low is also needed on price in order to initiate some form of positive divergence. We'll trade this by letting longs run above the 43,400 level and letting shorts run below the 43,400 level in tomorrow's session.
ReplyDeleteAnother green (just) candle on the day but importantly the T40 has posted a lower swing low versus the higher swing low on the stochastic indicating the potential for some positive divergence in the short-term as the stochastic starts to move off the oversold level. Perhaps even more importantly the 43,400 level held on an end of day basis and its important that it continue to do so.
ReplyDeletePretty much a flat day at the end of it all as the T40 tried to launch off the support level but quickly lost momentum and fell all the way back to end the day pretty much flat. Its now critical that the 43,400 level holds - weakness into the tail-end of the week would enhance the potential for downside movement.
ReplyDeleteA very bearish session saw a new low being formed and the lowest close on the T40 since the August 24th drop-off. It was a pretty end to end thick bearish candle forcing the stochastic into a failed reversal as it dropped back below its signal line into oversold territory. The 43,400 support level was comprehensively broken and we now see price approaching rising support at around 42,500. The plan for tomorrow's intraday trades will be to cap shorts at this support level while treating the 43,400 as overhead resistance. If 42,500 breaks further downside will be on the cards
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