Two weeks ago spot copper prices were being squeezed and at the same time testing trend line support and their converging 50 and 200 day moving averages. They broke that support and spent the next week moving lower. Today the price popped 2.9% returning to the technical confluence of support-turned-resistance.
Two weeks ago the DJIA successfully tested its 200 day moving average, and then spent last week advancing off that moving average. Some said it was a return to trend and the start of a new new leg up in the market, others suggested it would rise, but it was unlikely to make new highs and that selling into strength was the strategy.
Where do you stand? Have you examined the evidence, made an evaluation and incorporated it into your trading plan, or have you been paralyzed by the prognosticating of the punditry? There’s nothing worse than being on the right side of a trade you never made.
The monthly charts haven’t changed since the last review, so here is a reprint:
The monthly charts show the major indices in primary uptrends, but the July decline in those averages formed a series of bearish candles. Shooting stars can be seen on the charts of the S&P 500, the DJIA and the NASDAQ Composite, while a large bearish engulfing candle formed on the Russell 2000 chart. A shooting star illustrates rejection at higher levels that takes price back down to the low of the candle. An engulfing candle’s range encompasses the range of the previous candle and is considered a reversal indication. The actions of just single candles require confirmations, but they help to set the contextual stage for a multi-timeframe analysis.
Last week the major indices tested and held above important technical support levels on the weekly charts, and this week built on those gains. The S&P 500 and the DJIA are situated between their 50 and 200 day moving averages, with the S&P just above and the DOW just below long term uptrend lines, and both holding horizontal support lines. The NASDAQ Composite completed what resembles a three period morningstar pattern, and while these stars are usually seen at market bottoms, it could be considered a continuation pattern. Two weeks ago the Russell looked like it was going to break below its May low and potentially form a double top. It still remIns below its 50 and 200 day moving averages, but since then, is making an attempt to reverse and possibly retest highs. That, however, will require some technical effort.
The political jolt the market received on Friday helped to form some threatening looking candles on the daily charts, despite the late session recovery. Spinning top candles formed on the DOW and the S&P charts, and they reflect indecision. There is a potential hanging man on the NAZ chart, which I mentioned here on Friday, and the RUT simply has to get back above its 50 day moving average.
Over the last two weeks the major indices were able to hold important support and advance off those levels, and while action in the last session is suspect, a small pullback would not jeopardize the work that was done, and the fact that the longer term charts are still trending higher.
The NASDAQ Composite ($COMP) has been trading in a horizontal channel for the last two months. Two weeks ago it looked like it was breaking channel support and forming a double top on the daily chart. This week it returned to retest channel resistance, and even though it was the only major index that traded up on the day, it has, in my opinion, the most vulnerable chart pattern. First, because it is retesting confirmed resistance and second, because today’s price action formed a hanging man candle. This long lower wick candle resembles a hammer candle, but is often seen at tops and suggests the potential for a triple top.
Of course, this candle requires verification over the next several trading days, and more importantly the daily timeframe needs to put within a multiple timeframe context. I’ll be doing this in detail with all the major indices over the weekend.
Starbucks (SBUX) has broken its 50 day moving average and is testing a support level going back to June of this year. Chaikin money flow and the relative strength index are moving below their centerlines. This could either be a pullback to fill the June gap, just above the 200 day moving average, or the start of something more serious.
Shares of Tesla (TSLA) pulled back in today’s strong session after touching their February highs. The relative strength index and the money flow index, a volume-weighted relative strength measure, are in overbought conditions. This inability to hold new highs on a strong day in the broader market suggests the stock price may need to consolidate before continuing higher.