Price Action Trading in Times When the Recession Indicator is showing 78%.

Price Action Trading in Times When the Recession Indicator is showing 78%.

This week there are not many signals so let's jump directly to the big guy US Stock Market.

The recession's indicator value is slowly rising reaching 78%. This strengthens the case that we are probably in a recession right now (undeclared yet). But the market is holding during all that negative news. Again on the positive side, insiders are buying their own companies' shares at a rate not seen since 2009. That is some kind of bullish because they believe in their companies. But they are also doing this to convey "everything is good with our company" and encourage other investors. Also, like the Commercials in the futures market, the insiders are often entering early in the market. 

A lot of companies are racing to find a vaccine for the coronavirus. So this might happen soon. All it is getting warmer in the northern hemisphere which could lead to a peak in the virus activity. 

All this is bullish for stocks but the market breadth is worsening! How about that! There is light at the end of the tunnel but nobody is buying yet, well, except insiders.

What to do?

Look at the picture below. It combines the daily chart of the four major US stock market indices.

Price Action Trading. US Stock Market Indices

You might think they move the same but if you look closer you'll see that there a lot of differences.

Price Action Trading is telling us that Nasdaq is the strongest, while the Russell2000 is the weakest. Also, Thursday's bar (green one) is suggesting bullishness. But it appeared in only 3 of them. Russell again is showing weakness.

The last one, from Friday, is the same for all. Or is it? On the S&P500 and Nasdaq charts, we saw a breakout of Thursday's high. Dow made an inside day on Friday. And again Russell was the one braking below the Thursday low.

Friday's bar was something I call 2xN. This is a very specific bar which, statistically speaking, is suggesting the following:

  • Monday should begin with a move down
  • It is more of a bullish bar which means that breaking the high is more probable
  • If there is a break, through the high or the low, the probabilities are very high to see a close in that direction

If the downtrend is over and the bottom is behind us it is reasonable to expect big traders to start to position themselves. That would mean more fake breakouts. If we combine this with the chart above it would mean that the best buy signal will come if NASDAQ breaks the low, creating a fake signal then immediately goes up and breaks the high. By the way, if you like price action trading I suggest you visit the Talking Chart FB page. Of course, we can't expect the market to do what is best for us but some of the things will happen.

I hope you enjoyed this week's blog post. It is different from those before. But times are different and we have to adapt.

Ah, and the book is coming this week. More info here

Now, let's find your missing piece!

Vassil Banov,
Founder of Piece of Trading

Trades mentioned here are either taken or will be taken by the author if the right conditions appear. They are NOT recommendations nor any of this constitute investment advice. Please read the Risk Disclaimer

Charts made with TradeStation®.

TAGS: S&P500, SPY, SPX, Federal Reserve, COT, Commitments of Traders, Down Jones, Fundamental Analysis, Price Action Trading

Find this content helpful? Support our efforts by buying us a coffee!