A bullish triangle pattern formed on the Bitcoin chart last month. It signaled a pause in the long term uptrend and the beginning of a consolidation phase. This month Bitcoin is breaking out of the triangle consolidation and is moving higher.
Follow-through price action is suggested by taking the height of the triangle pattern and adding it to the breakout point. This measured move targeted about a 30% move higher. Bitcoin is up 10% since the breakout and has the potential for 20% more upside from its current level.
Bitcoin’s breakout was initiated off a small base just above the 50 day moving average. The average has been steadily rising, tracking from the lower left of the chart to the upper right. Stochastics has crossed above its centerline reflecting improving price momentum. On balance volume is back on the rise and above its 21 period signal average. The combination of positive price action and money flow, and the strong bounce off the 50 day average is a very bullish combination.
If Bitcoin is able to to achieve the measured move target price it would also make a new all-time high. At this point, it is likely that it would begin constructing a series of higher highs and higher lows. This would mark the start of the second phase of its primary uptrend.
One of the most watched for candlestick formations is the morningstar pattern. It is a three-day series of candlesticks that suggest the end of a down trend and a reversal to the upside. The first component of the pattern is a large dark down-day candle with the close near the low of the day. It is followed by a doji-like candle. A doji is a candle with a very narrow opening and closing range, meaning that the close is at the same level as the open. The morningstar is completed by a large up-day candle with the close near the high of the session.
The implication of the three-day pattern is represented visually by the price action. It is simple: bearishness, followed by indecision in the doji, and finally bullishness. A clear visual of the transition in investor sentiment.
Friday’s open looks a little weak so remember all technical patterns require confirmation and a close below the doji low negates the bullishness of the pattern. That said, here are five morningstar set-ups:
SPC Commerce (SPSC) is a cloud-based supply chain and logistics firm. The stock price has been making a series of higher highs and higher lows since September last year. It has established a strong uptrend line above the rising 50 day moving average. Chaikin money flow is in positive territory and the relative strength index is above its center line. These readings reflect positive price and money flow momentum. There is another bullish indication that at first glance is not as evident.
During SPSC’s four month run the highs it made in September, October, December, and January all follow 29 day cycles. That is, approximately every 29 trading days a high in the cycle of higher highs was established marking the end of one cycle and the beginning of another cycle. The most recent low was made on January 14 last week and a continuation of the 29 day cycle suggests that the next high will be made on February 22.
There is an old technical saw that says something along the lines that once a cycle pattern is recognized, it fails. That remains to be seen but ultimately the trend continues or ends based upon the integrity of the simple red uptrend line. If it continues to hold the trend is intact and if it is broken the trend is considered broken. The bottom line at this point in price and time, however, is that SPSC is in a primary uptrend and the technical picture is bullish.
(Picture courtesy of: https://valuestockguide.com/)
Bitcoin (BTC/USD) broke out of an inverse head and shoulders pattern in June on the weekly chart this year. The neckline of the pattern at the time was intersecting with the downtrend line of a three year triangle pattern. This multi-year triangle pattern projected an upside measured move price target of around $29,000 or roughly a 190% gain. The move is calculated by taking the height of the triangle and adding it to the breakout point. It seemed an ambitious goal. I always question the reliability of such large patterns but this triangle had three data points on the support line, and three on the resistance line. They clearly defined the pattern but while a clearly defined pattern is one thing, reaching a very large price projection is another.
In the last half of 2020 Bitcoin rallied and rallied hard. It has now reached the $29,000 triangle price projection. In fact, Bitcoin is up over 300% since the start of the year. So, the question is: do you trust the pattern and its achievement and take profits, or do you see better things for Bitcoin in the new year and HODL on? There are a number of individual factors that come in to play. Traders are sometimes lumped into one category but we are all different with different trading requirements and personal goals. I always see the middle of the road as a good option. Take some profits. If you own a bunch of or just several Bitcoins then take some profits. It just seems like a logical option at a logical price level.
Since early September many of the large cap tech names have been moving basically sideways. Amazon (AMZN) shares are a perfect example. They have been headed right on the chart in an increasingly tight series of lower highs and higher lows. The price action formed a symmetrical triangle or wedge pattern on the daily chart. To be more exact the pattern is called a rising wedge because the consolidation came after the uptrend that began earlier this year.
Note that Amazon’s 50 day moving average runs right through the middle of the wedge pattern (dashed red line). On this chart, I reset the Bollinger bands indicator to use that 50 day moving average as its centerline. Normal Bollinger bands are constructed two standard deviations around the 20 day average. We have changed the centerline average. The outer bands of this 50 day average hybrid remain the usual two standard deviations above and below the average. With the 50 day average moving nearly horizontally the two standard deviation bands have marked the most volatile moves away from the average and helped to define the triangle.
These modified Bollinger band limits may help to confirm an ultimate breakout or breakdown in Amazon’s wedge pattern.
The month of November was been a positive one for the broader market, but it was also one that sent a number of mixed signals. The first week saw a sharp jump in the indices followed by a gap even higher to start the second week. But that gap-up day turned decidedly negative by the end of the trading session. We wrote this article about the negativity of the daily candles. The market dipped the following day but then continued on its upward path. One week later a bearish eveningstar top formed on the daily index charts. We highlighted that reversal formation and once again, the indices dipped briefly and then made new highs.
The point is that, as always, the market sends false signals as it does its best to prevent traders from divining its movements. That brings us to todays commentary. It is simple, we have reached an important point in the Fibonacci time sequence when measured off the 2009 low. If we begin measuring the fabled sequence off the low made in 2009 on the weekly charts, we find that we are 233 weeks from that point. That is the 13th Fibonacci time zone. (for more information on Fibonacci measurements this is just one of many resources online.)
At this point it is impossible to say what reaching this Fibonacci way-point means for the market. Like all technical trading tools it must be followed by a period of confirmation. In most cases, the more esoteric the trading tool the less likely, in our opinion, of any meaningful affect on the market. That said it is important to be aware of all the signals the market sends, and to factor them in to your trading plan.
Back on November 9th a large wick shooting star candle formed on the Dow Jones Industrial Average daily chart and the $&P 500 Index chart. A large dark engulfing candle formed on the NASDAQ Composite daily chart. These candles suggested a broader market pullback was in order. There was a brief decline, but not the short to intermediate top that might have been expected. In fact, the averages quickly returned to their November 9 levels.
Now another indication of a possible short to intermediate term top has formed on all three charts. It is the bearish eveningstar reversal pattern. This 3-day pattern consists of a large up-day candle, followed by a doji-like candle, and completed by a large down-day candle. The eveningstar represents a transition in price action and investor sentiment from bullishness to bearishness.
Today’s finishing dark candles formed because of a late session waterfall decline in all the averages. It can be seen on the ten minute DJIA chart. The eveningstars could trigger declines to the next levels of support on the individual index charts. It looks like the Dow and the S&P are likely to retest their October highs. The NASDAQ may be headed down to a retest of its 50 day moving average.
This market quickly absorbs good news and just as quickly discounts bad news. It’s a tough one to trade. Keep any eye on these index charts and keep your stops tight.
The broad market indices seemed to have absorbed and then quickly discounted (to some degree) today’s positive Covid-19 vaccination news. Within the first hour of trading the initial rally in the indices began to fade. They wound up finishing the session near their lows. The Dow was still up nearly 3% and the S&P 500 index was up a little over 1%, while the NASDAQ Composite was down 1.5% on the day. But the charts were damaged.
Today’s erratic price action transformed the look of the index charts from bullish to bearish. The great news, while initially reflected in the opening gap up on the charts, evaporated as dramatically as it appeared. Within the first ten minutes of trading the indices began pulling back. Mid-session there was an attempt to regain some of the initial positive momentum, but by 2:00 o’clock the fade returned and accelerated into the closing hour. The candles that formed on the charts look ominous. The price action now suggests a more negative scenario than positive for stocks over the near term.
Look at the Dow and the S&P daily charts. Today’s candles are called “shooting star” candles. Investopedia defines a shooting star as a candlestick that forms when a security opens, advances significantly, but then closes the day near the open. The result is a small lower real body candle with a large wick.
Shooting stars are often seen as reversal candles when they appear near old highs or other important levels of technical resistance. An interpretation of the price action suggests that buyers have lost control and sellers are taking over.
On the NASDAQ daily chart a bearish engulfing candle formed and it may be even more negative than the shooting star candles. This particular engulfing candle opened near its high of the day and closed near its low. In the process, “engulfing” with its real body range the entire range of the two previous trading sessions. This clearly negative price action is taking place right near the September and October highs. Of course, this opens up the possibility of a triple top formation.
The upshot of these candles is that it appears investor sentiment may have shifted bearish after turning bullish at the beginning of the month.