Having correctly anticipated that the Dow Jones will make record highs, this week, we might have a sideways movement or perhaps a correction. But with Dow making new highs and the season of October to December which is seasonally very good for the market, there is a possibility of sideways movement and moving higher.
Trying to predict the future and what will happen to the Dow, S&P 500 and Nasdaq can be difficult at times. Therefore, we will look at the charts and have a game plan of what to do in each situation. We don't need to be correct all the time but we do need to know what to do in each situation so that nothing can surprise us. It is sometimes at the last minute that I make my decisions and change my mind. Only a fool would not change his or her mind.
Let's take a look at what the charts are telling us and anticipate what we can do in the situations that the Dow gives us.
It is always important for the trader to look at the 3 major indexes. They are the Dow Jones Industrial Average, The Nasdaq and the S&P 500 Index. To look at the support and resistance areas of these major indexes will often give us a clue on the likely direction of the markets.
As you can see in the daily chart of the Dow Jones Industrial Average above, the popular index is making a nice smooth uptrend. Not as smooth if you look at the average portfolio account I guess. But overall, the market is rising step by step and making higher highs and higher lows. There are many doom and gloom reports out there but as traders, we look at the charts and the facts ahead of us and try to come up with a reasonable game plan.
The direction of the market and the layers of support that it has formed tells us that the market is currently in no danger of a big big crash. Sure there will be corrections here and there. But I think the layers of support will allow the investor or trader to get out in style and in time because support areas cannot be taken out just like that in a single day. In indexes as big and diverse such as the S&P 500 and the Dow Jones, it will fall and it will crash but it does not happen that way if there are layers of support below.
Let's take a look at the lower time frame. The 60 min chart is one of my favorites to look at because they often tell us the story of the major index as it happens. You can often get a nicer picture of what is likely to happen in the daily chart if you look at the 60 min chart first.
We have caught and anticipated the nice rise of the Dow for the past 2 weeks. The fact that the Dow stayed above the rising 60 min 50 MA most of the time told us that we should be bullish until it drops below it. Which it did drop below this week and thus caused some volatility in the index. Right now there is some weakness in the Dow but it might just be a small correction and the fact that it has broken above a downtrendline might signal a potential rise next week.
We do not predict but as traders we react to what is given to us. If the index does this, we adjust our positions accordingly. If it does that, we also will shift our gear and react accordingly.
The S&P 500 has hit record highs and currently it is just meandering in the new box area that it has found itself to be in. The previous high which was overcome now acts as a price support area and therefore traders should not worry too much as long as price stays within this defined area. The more it trades sideways in this area, the better it will be for the index when it breaks higher.
The 60 min chart shows us clearly how the price pattern behaved. There was ample support below and thus the bounce up as it reach the support area. It is now in a slightly bullish position as it broke a downtrendline and staying above that trendline and above the 2492 area will be good for the bulls.
The Nasdaq is the weaker one among the 3 indexes. Thanks to Apple which has fallen a lot recently, perhaps because of investor's concern on whether the $1000 Iphone is good enough to pour money into Apple's coffers. But the Nasdaq is still in an uptrend and it is now sitting at the 50 MA. I love to find reversals when indexes are at the 50 MA. But in order to have a confirmation, we need to look at the lower time frames and see if it can bottom out.
Like I said, we need confirmation from the lower time frame of any reversal in the daily chart. The 60 min chart above shows us that Nasdaq is trying to form a lower high and it wants to break above a downtrendline. We will have to monitor closely whether it can bottom out. A break below 5910 will not be very good for tech stocks and the markets as it will show us that the 50 MA in the daily chart of Nasdaq is not holding.
We will now turn our attention to Gold and Oil. Although I like the Dow, Nasdaq and S&P 500, I still find it good and necessary to look at the commodities. Lots of traders like to trade Gold and oil so I think I will try and cover it as well.
The daily chart of Gold shows us that it is quite oversold at the moment. It is also sitting at a support area. So naturally we would like to see if it can bounce up or not. Notice that it is also sitting at the daily 50 MA.
I would like to see oil break above the 60 min downtrendline and continue to make higher highs and higher lows before a change of trend can be certain in the 60 min time frame. Notice the box I draw? I would like to see it break above the box as the first sign of gold trying to go higher and finding support at the daily chart price support.
Oil as we covered last week, I showed you all how it broke a downtrendline and some kind of triangle pattern. It is currently trying to go higher and staying above the 49-50 area will be good for oil bulls. If we take the measured move target, there is a possibility that oil may move up toe 54 - 55 in the mid term.
When we zoom into the 60 min chart of oil, we can see that it is trying to form some kind of a triangle pattern. While we do not know which way it might break out off, the triangle shows us that something is going to happen to oil soon. The bias of course is bullish because we usually want to have a bullish bias when the previous ride is up. But until oil breaks above 51 decisively we do not know whether it will go any higher or not in the short term.
With the growing interest and importance of Bitcoin, I have also started to analyze Bitcoin. Just the price action and not the fundamentals. So, it may be of interest to readers who like to dip their feet into cryptocurrencies. Sorry I do no do Ethereum or other cryptocurrency yet. Let's just start with Bitcoin first.
The daily chart of Bitcoin USD has shown us that the 2800 area has emerged as an area of strong support. The current drop ended there. I'm not sure what Bitcoin is doing right now but it may be breaking a downtrendline and setting up a cup and handle pattern in the daily chart.
In the 60 min chart, we can see the details of the price move in Bitcoin. Last week, I highlighted to you all that Bitcoin may break down and it shot down lower from about 2850 to 2500. It tried to bottom out, break a downtrendline and tried to consolidate and break higher but the amount of resistance above was too much and overwhelming for it and thus it corrected again. Right now, we will have to see whether the 3670 area can hold and move higher to make a higher low and break higher. Breaking below 3600 will not be good for Bitcoin in the short term.
With regards to major indexes like Dow and S&P 500, I do not think that a big crash is coming yet. There may be corrections along the way but I won't worry about a big crash at the moment. The months of October, November and December is historically good for the indexes for the past 5 years. Until then we continue to analyze the charts day by day and learn to spot any weaknesses. Do join me in the Telegram group or just check out the latest post everyday. I post charts and update everyday.
Remember always to have a trading plan and follow your plan very well. Trading is not a win win win situation all the time. It takes patience and perseverance and discipline to be able to profit from the stock market.
Have a great week!
Charts with the Freestockcharts.com label are courtesy of Freestockcharts.com
Charts with the investing.com logo are courtesy of Investing.com powered by Trading View
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