Apparently, the stock market saw our euphoria chart and the correction started. Putting the joke aside, it isn't very common to see the market rising faster than it falls. So it can be counted as euphoria. But what does it mean? A crash is coming? Or the uptrend will continue?
Let's not go that far and stay present. Even if a crash is coming it won't happen overnight. At the moment we are in an uptrend and the Federal Reserve is still a friend to the bulls. Right now, a correction has started and what we need to do is to try to guess where the correction will end.
For now, the situation is as follows:
Unfortunately, nothing is strongly suggesting long or short. Even price action is not giving us much. The last day was a Long Body. If we consider the prior day's closing and the gap it could also be considered as No Tail. That suggests an up move for Monday but nothing strong to base our strategy on it. In such cases, it is better to wait for the next card to be drawn.
However, there is something we need to mention. If the market goes up that will fuel the short squeeze madness we've seen in the last week. I hope you didn't got burn. Also, the scandal around GME, the temporary ban that some brokers introduced and the capitulation of hedge funds might put pressure on FED. If the central bankers even comment about an eventual pause or the removal of its current support for the markets the decline would be severe.
Is it time for another short-term move down in GBP? Let's see the chart.
Below the chart, the blue line is suggesting that we should see a decline starting the first week of February. That idea is supported by the On Balance Volume which is diverging from the price and showing distribution.
A lot of things happened in the last trading week from a price action perspective. The most obvious is the tight range the price is staying in. Also every time it goes above 1.3750 a distribution follows. After the inside bar on Monday, we had an Outside 1xT followed by a down LB after 1.3750 was reached. Next was another 1xT only this time it is lacking the Nose. And on Friday a down 1xN again after it briefly touched 1.3750.
The configuration of the last few bars suggests a large day can be expected on Monday or Tuesday. Like always both sides are possible but since the last month, the GBP is moving in something like a rising wedge + the net short position that the Commercials are building for some time now and taking into consideration all of the above I would prefer taking short signals, especially bellow Friday's low. This is the direction I think better risk-reward can be expected.
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
Get it today!