Very Interesting Situation in the Stock Market. Rare reversal is Possible

Very Interesting Situation in the Stock Market. Rare reversal is Possible

Australian and Canadian Dollars delivered good trades as suggested in the last week's post. Nothing more can be done here. I was wrong about Wheat. From all the situations discussed last week, one remains still active. It's Corn


The situation with Corn is improving. It is still being accumulated. Still making higher short-term lows. The Commercials are still buying.

Corn analysis 05/18/2020 - 05/22/2020

The week begun with an inside 2xT day (see the zoomed area). Its low was penetrated and a down move began, only to end up shortly after that when the prices rebounded and went through the high. In the end, the Tuesday's bar looked as Outside 1xT. This points to a continuation of the up move. But a big outside day also means a lot of buying. This led to a decrease in volatility and the next three bars were small.

Having small we can expect a large one to come. Having in mind that all other tools suggest it should be to the upside let's see if price action agrees. Using the techniques described in The Talking Chart book we see that the down 0TLB and 1xN suggest an up move. There was a buy signal with the breakout of the Thursday's high.

The last bar is an LB which is rather neutral in its suggestion for the direction of the next bar. But this is only if the high or low is not penetrated. If the next bar breaks above Friday's high we can expect with 61% chance that the bar will close up. So the up move can continue. Since we can expect a bigger move here (swing setup) the next target can be around 333.


Look at the next chart

All major US stock market indices

It shows a daily chart four of the major US stock market indices (futures). As you can see Nasdaq is the strongest, followed by the S&P500.
The combination of the last two bars in both S&P500 and Nasdaq is the same – double 1xT. But let's look closer at Nasdaq since it is the strongest.

Here is the chart

Nasdaq price action analysis 05/18/2020 - 05/22/2020

As you can see we are approaching a seasonal bottom, somewhere around May 21. Indices started to catch up with the seasonal pattern after the COVID-19 decline which put them off track. That might mean that it is possible to see the rally suggested by the seasonal chart.

This is backed by the increase of the volume around the last bottom and the On Balance Volume which shows no signs of distribution.
If we apply the price action from the book The Talking Chart we'll see that the last two bars are suggesting an up move can be expected. That probability grows to 67% if the high of the last bar (Friday) is penetrated on Monday. If that happens almost 50% is the chance to a Long Body day. It is very hard to forecast the shape of the next bar or candlestick but it gives us some idea of what to expect in terms or closing an eventual position.

Now here is something new which only long-term followers of this blog have seen. It doesn't happen very often.

I think that we are now in the most important moment for the stock market. From one side we have the FED supporting everything with everything. But on the other side, we have an economy which is not in good shape. USA-China relationships are getting worse again. There can be new waves of the coronavirus. US presidential elections are getting closer and so on.

All this makes it hard to strongly support one market direction. And in my opinion, we are at the end of the first slowdown (a form of consolidation) after the uptrend has started. This is the time where we can expect to see a new pull-down
Considering all that I'll be ready to play both directions. I prefer taking buys here because the chart I suggesting this at the moment, but I'll be ready to reverse the position or short some of the weakest indices. Which option is too early to tell.

For swing or long-term trading, such reversal of the position is unthinkable but for short-term, it is allowed.


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
Seasonal indicators courtesy of Larry Williams, Charts made with TradeStation®.

TAGS: S&P500, SPY, SPX, Federal Reserve, COT, Commitments of Traders, Canadian Dollar, Down Jones, Seasonality, Fundamental Analysis, Price Action Trading, Corn, Australian Dollar, Talking Chart, Accumulation

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