01-29-2019 Mystery Chart

JC Parets
January 29, 2019

This week we're back with another Mystery Chart.

For those new to the exercise, we take a chart of interest and eliminate the x and y-axes and and all labels eliminated to minimize bias. The chart can be any security in any asset class on any timeframe on an absolute or relative basis. It can even be inverted or a custom index.

The point here is to not guess what it is, but instead to think about what you would do right now. Buy, Sell, or Do Nothing?

This week our chart is a massive breaking to the downside. Prices held support several times in the past, but now look to be resolving decisively to the downside.

Click on chart to enlarge view.

The question now is if this breakdown will be successful or if it will be a failed move like the one highlighted in green. For me, I'm leaning more toward a successful breakdown due to the price action leading up to that breakdown compared to the one now.

The decline prior to the breakdown in green was extremely sharp and occurred at a rate that wasn't sustainable. Any time that sharp of a move leads to a break of support (or resistance), I'm always on the lookout for a failed move. Its rate of change isn't likely to maintain such an elevated level for extended periods of time, so the question becomes:

Does it digest that move through time and then continue in the direction of the new trend, or does it reverse like it did in this case and lead to a face ripper in the opposite direction?

In that case, we got a face ripper.

The current breakdown is occurring after prices successfully tested support, rallied slightly, and then continued lower. This is also the 6th major test of this support level and where I come from I learned that the more times a level is tested, the more likely it is to break. Point being, the conditions around the current move appear a lot more sustainable than those around the *failed* breakdown that occurred in green.

Seems pretty clear to me, if we're below this gray support range we need to be short all day. This looks like the start of a new structural downtrend.

So what would you do? Tweet us @allstarchartsIN or email bruni@allstarcharts.com and check back in Thursday to find out what this chart is and why we think it's important.

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