Big Sell-off in US indices. Only correction or the beginning of a new downtrend?

Big Sell-off in US indices. Only correction or the beginning of a new downtrend?

The latest COT report is showing a short-term COT pattern in Copper and Australian Dollar on the short side and one long in Japanese Yen. But I can't find anything else to back such setups. All those would need lower short-term high for sell or higher short-term low for buys. If we see such then would more clear if there is a signal or not. 

Now let's jump to the stock market.

A big sell-off day in US stock market indices. But is this only to scare us and then go back up or is this the beginning of a new downtrend? 

The current market situation is unique, or is it really? Yes, the second wave of coronavirus is possible, and yes, it will take time for the economies to recover. But every time there is something to worry about. 

Let's instead focus on price action and see if can find the answer to the question what's next? 

Look at the picture below 

US indices comparison  

As you can see, it shows that Nasdaq is the strongest of them all. But this picture also shows the type of pattern we are currently facing. And it is Down Big Long Body day followed by an up Long Nose. Except for the Mini Dow, where Friday was an inside day, all other indices were able to penetrate Thursday's low and then rebound. 

All that creates a very specific pattern which has happened before. Based on the previous appearance of such combination we can conclude that the next move should be up. In only a few occasions the low was penetrated but then an immediate recovery took place. Many times the market took off directly from the opening, with no movement in the opposite direction. 

So let's summarize all that in the next chart. 

Probability Distribution of S&P500

 It is showing the probabilities for the next move in S&P500. All those numbers mean that the next move could be expected on the upside, especially if Friday's is hit. It can also be another big day.   

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, COT, Commitments of Traders, Copper, Australian Dollar, Japanese Yen, Price Action Trading

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