Technical analysis: Do not expect a trend change – any increase in Wall Street will be temporary

The writer is a technical analyst from Bursa Graf Group


What is technical analysis?

A method for making an investment decision in the capital markets, which is based on market behavior. The graph is the final result of the decision-making equation of all investors in the market, thus embodying all the information relevant to the decision

The latest drop doesn’t leave much room for interpretation. What by all indications was supposed to become a rising wave evaporated and disappeared in the darkness of the selling waves until a bottom was conquered.

Those who followed the sequence method and left on time received a small blow on the wrist. Those who don’t, will get a chance to leave with dignity in the near future.

Those who, on the other hand, will not pay attention to what the market signals, and will hold on to their stock portfolio like the altar funds, will find themselves a “captive of the stock” without any ability to make a rational decision.

There is no upward trend and the sequence is negative

There is a marked difference between the long-terms, which indicate negative momentum without any signs of a bottom, and between the medium and short-terms, which indicate saturation. And it is not a dissonance that cannot be understood. The main message is that any increase, even if magnificent and high in percentages, will be temporary. There are no signs of a final bottom yet.

Since the weekly chart does not carry new lines, and the ascending sequence is broken, this time I will deal with a longer time dimension, the monthly chart. Signals of weakness or strength become more significant the less their appearance over time. So let’s take a look at the monthly time dimension, where each candle represents an entire month.

If you look at a monthly graph starting in 2009 (you can use the Stock Monkey system for this) you will be able to see a number of elements that have not occurred until today.

1. There is no upward trend. By definition, an uptrend is a rising series of highs and lows. Each low point must be higher than the previous one, and the same goes for each high point. A look at the graph shows the absence of an upward trend. This raises the level of risk in any decision you make.

2. A descending sequence takes place. A descending streak is actually a series of candles that meet certain conditions.

I developed the principle of sequences about 20 years ago, and they are taught in my courses. They make it possible to pour certain content into the conduct of the market and to understand at any given moment what we must do. And the streak right now, dear readers, is going down.

3. The moving averages – contrary to the popular and wrong opinion, averages are not tools for mitigating buy and sell signals. They are actually momentum indicators. If you look at the moving averages you will see that the short average is below the long average, both are sloping down and the market has been below both for several months.

More than that is not possible nor should it be. If you have a chart available of the gold or the Eurodollar, this situation exists there as well, and it led where it led.

4. At the bottom of the graph you can see the relative strength index – another momentum index with limited capabilities.

At the same time, it has not retreated to such a low level for several years, and this also indicates negative momentum.

5. And the additional and encouraging number for the near term is the retreat of the market below the lower Bollinger band. This decline, which is rare in long-term terms, signals proximity to the bottom.

But this is a temporary and one-point bottom, which will allow everyone who is still there to leave with dignity.

The main recurring message is the absence of an upward trend and negative momentum.

Although all the possibilities in the market of uncertainty exist, the current behavior of the market indicates a high risk and a high probability that any increase will be a temporary matter.

How to get out of the position easily

The main claim of anyone who has ever been beaten, including your faithful servant in his youth, is that there were no signs. I didn’t see that coming. This is an argument of everyone who enters a place without prior preparation. But there are signs. There always is. You just have to know what to look for.

I decided to bring you the four selling signs that I have been teaching for years in my courses. They cover all possible market situations. They are not perfect and not free from false signals. But if you use them as their writing and their words, the last avalanche was really the last you would experience.

Before using them, you must determine the time dimension in which you trade, and in this dimension make use of signs.

So how do you know it’s time to leave?

One of the cornerstones for understanding the direction of a market or a stock, and for making a wise decision to carry out a transaction – both buying and selling – is based on the “consistency principle”. Up or down trends consist of ascending and descending sequences, the distinction between which and their understanding is critical for making a decision.

In an ascending sequence, the closing price of each candle will be higher than the low price of the previous candle, and the reference will always be to the highest candle of the sequence.

The counting of the candles in the ascending sequence starts from the lowest river in the sequence, as you can see in the graph.

One signal, a bullish breakout, occurs when the closing price of a given candlestick is lower than the low price of the highest candlestick in the rising streak.

Breaking a rising streak is a sign of liquidating a long position. It means a dramatic increase in the level of risk, an increase in the likelihood of a significant technical correction and even a trend reversal. One should pay attention to the breaking of the rising sequence before the landslides of the last few years, and in fact in all the technical corrections that have taken place until today.

Another signal is a close below the moving average 5. It is used as a backup for a situation where the rising sequence is not broken, but the market registers declines. When the lock rate is lower than the moving average, the transaction must be eliminated.

A third signal is a red candle that is entirely above the upper Bollinger Band. Any deviation from this band increases the likelihood of a downward turn, especially when there is a red candle that is entirely above the upper band.

A seller’s candle that is entirely above the upper Bollinger band is the fourth signal. A seller’s candle is a candle with a small body located in the lower part of the candle. The upper silhouette is at least twice as long as the body. The color of the body is not important. Its appearance above the upper Bollinger band establishes the fourth sell signal.

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