Mystery Chart (09-29-2020)

Steve Strazza
September 29, 2020

From the desk of Steve Strazza @Sstrazza

New Mystery Chart!

For those new to the exercise, we take a chart of interest and remove the x/y-axes and any other labels that would help identify it. The chart can be any security in any asset class on any timeframe on an absolute or relative basis. Maybe it’s a custom index or inverted, who knows!

We do all this to put aside the biases we have associated with this specific security/the market and come to a conclusion based solely on price.

You can guess what it is if you must, but the real value comes from sharing what you would do right now. Buy, Sell, or Do Nothing?

This week, we're looking at a massive topping pattern. When I say massive I mean it... we're looking back multiple decades on this one (there's your hint).

Click Chart to Enlarge Image.As you can see in the chart, the tests of support have become much more frequent of late. This is a sign that sellers have become more aggressive. Each and every time they hit that level, they absorb more and more demand.

This is the whole idea behind the market aphorism, "the more times a level is tested, the more likely it is to break."

Gradually, with each additional test, the buying power at these key former lows will begin to evaporate until there is nothing left. In a textbook world, this would eventually lead to a big collapse in prices and a sharp move lower.

Although, that's not always how it works in practice. We can't count out the fact that as of now, buyers are still fighting tooth and nail to defend this critical level.

So, the question that remains is simple...

Is this it? Have sellers pushed buyers to the point where they can't take anymore, and prices finally resolve to the downside?

Or, is this just a whipsaw move beneath a well-tested level of interest, and prices soon snap back to the upside, trapping shorts and causing a quick move higher?

Or of course, there is the option of waiting to see how price reacts at its current level. Do we want to wait for more information before choosing a directional bias?

Tweet me your thoughts @Sstrazza or email me at strazza@allstarcharts.com and check back at the end of the week to find out why this chart is relevant.

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Allstarcharts Team

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