Same emotional reaction in Gold, JPY and SP500 Different Price Action Path

Same emotional reaction in Gold, JPY and SP500 Different Price Action Path

New President-elect and successful trials for the Covid vaccine sent ripples through financial markets. Most notably in stock indices, Gold and Japanese Yen. Those large, emotional movements are where I'll focus in this week's post.

Gold and JPY movements can be considered the same in term of price action. Extremely large down, Long Body days, closing near the low. Those days are highlighted on the charts below.

Usually, such emotional days do the following:
- lead to many inside days after them
- mark the wrong direction!

Yes, most often when there are too many emotions focused in one direction, it is an indication of a wrong way. In the current situation, too many participants decided to hit the risk-on button, and that can be wrong at least in a short term.

And there is more. Check the following charts.

JPY and Gold analysis

As you can see, those big single-day declines were not registered in the accumulation measure, which in this case is On Balance Volume. The indicator is making higher highs ignoring the new lows the price is making. This is bullish.

This is not much different from the price action pattern described in the mini-course. Only it happens in slightly different circumstances. But it is reasonable to expect the same, that is to take price action signals favouring the up direction. First target - 50%, then 100% correction of those extremely large days.

One more thing. Japanese yen is comparatively stronger than Gold (see the blue arrow). That makes me prefer taking signals there. Silver is also stronger than Gold.

US Stock Market

Similar explosive moves were registered in the major US stock market indices which led to new all-time highs (check this blog post "NEW All-Time Highs is Expected for SP500. How To Combine Two Price Action Patterns"). But besides being in the opposite direction, those moves were different from the ones we saw in Gold and JPY.

All indices retraced back and closed below the 50% as a Long Nose up days. In Nasdaq's case, this retracement was even bigger and it closed as a down day. The difference is in the shapes, the Long Body shape in JPY and Gold, and the Long Nose shape in S&P500, DJIA and Russell 2000.

US Stock indices analysis

The Long Body shape means no or small profit-taking, while the Long Nose suggests big profit-taking. Big profit-taking leaves a lot of money out of the game. That money would look for a way to get back in. And since the indices were able to reach such high levels once (these levels are now considered known), I think there will be at least an attempt to reach those highs again. 

Very interesting don't you think? Same news, same day, same emotional reaction, same huge movements but a difference in the shape signals for different paths. That's the beauty of price action trading. 

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, ireallytrade.com. Charts made with TradeStation®. tradestation.com

TAGS: S&P500, SPY, SPX, Gold, Silver, JPY, Japanese Yen, Price Action Trading, Talking Chart

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