I don’t just post charts for giggles. I actually enjoy figuring out the markets larger technical moves and find it to be interesting puzzle work and hope people find value in them. And while some say markets can’t be predicted understanding levels and the market action in context of patterns can provide price targets that allow for highly favorable price entries.
Just recently on July 28 for example, I mused about the $DJIA in an article titled: The Never Ending Story. In it I outlined a $DJIA chart that proposed upcoming price tests, the first one being the monthly 10MA at 16,374 while the $DJIA was at 16,930 (over 550 points higher):
Well, guess what? Here’s the level that proved to be the bounce zone this week:
That is not to say the low is in, but it made for a nice trade to the upside and of course if you were long at 16,930, the patterns in the chart above served as a hopefully cautionary sign if not outright short signal.
The example above illustrates a larger point though as well: Despite all the daily gyrations and influences from central banks, stock buybacks, QE, pension funds, etc. the market is trading very technically. If you manage not to get too distracted by the news flow and focus on the technicals you can stay on the winning side of the trading business.
Everyone has strengths and weaknesses as a trader. One of my strengths is identifying patterns and levels. Yet as any trader will tell you it’s virtually impossible to take full advantage of good calls. For one thing it would be poor trade discipline to go 100% short at $DJIA 16,970 even if you think you got the pattern nailed. While I had some nice short and long set-ups in the last few weeks with this and similar patterns in mind I did not catch the full extent of this move either. It would have been nice to say the least, but risk management and account sizing are critical to stay in the game long term as no chart call is a 100% guarantee, but it’s nice to see them work out so nicely and precisely. But no complaints. The call was spot on. Now on to the next trade.
For now the updated chart shows the bounce off of that 10MA level which may continue for a while. Yet plenty of downside risk remains as well:
Stay tuned for more charts in the future. If you like daily calls feel free to join us in premium.
Categories: Daily Market Brief